Recent devastating world events have created substantial corporate disruption. Past notable incidents severely impacting day to day business include September 11, 2001 which destabilized global markets; Hurricane Sandy in 2012 which inflicted nearly $70 billion in damages; and the 2010 volcano in Iceland which restricted travel in Europe and interrupted the supply chain. These unpredictable events leave businesses in search of protection under contractual obligations with critical vendors. As credit and collection professionals this could lead to nonpayment disputes with regards to this clause if applicable.
The COVID-19 world health crisis has frozen commerce and left many businesses with a significant decrease in cash flow. Consequently the Force Majeure (Latin for Superior Force) clause is becoming more relevant. As a credit and collections team you should review all signed agreements to confirm this clause is in fact cited in your organizations terms & conditions.
A common legal clause in many agreements that permits your customers to restrict responsibility when exposed to some unexpected and extraordinary circumstances.
Taking a deeper dive into this leads on to determine what is defined as circumstantial events to invoke the clause. Standalone pandemics and epidemics do not have to be classified as force majeure event, but the consequences of such episodes (ex. port closures or suspension of transportation) severely impact the market and invoke this defense.
“A force majeure clause sets forth limited circumstances where a party may either terminate or not perform certain contractual duties without liability due to the occurrence of an unforeseen event. Whether this is a valid defense depends on the language of the clause-i.e. whether, or not, it specifically mentions a “pandemic” or “public health emergency”. Whether or not Covid-19 falls into such a clause would depend on the specific wording of same. You also have to look at any other specific requirements in the clause defining what is excused, the circumstances of same, notice requirements, etc. It is really contract specific as to whether or not such a clause applies. I’m sure there will be litigation over this in the future,” says John H. Bernstein, Esq.
In the middle of the COVID-19 health crisis, Global Hawk Resources does foresee an uptick with your customers invoking force majeure as a valid term of dispute. From a global perspective the Chinese government has issued an overwhelming amount of force majeure certificates since the pandemic began. Most of these claims will not hold up in English law as the provisions need to be far more specific. With this said we recommend reviewing your current contracts to determine if force majeure is cited in specific terms and to what length.
Founded in 2016, Global Hawk Resources is the worldwide leader in commercial credit and collection services. The company offers a wide range of products and services designed to optimize your organization’s bottom line.
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