Are you facing supplier disruption and potential contract cancellation as a result of the recent pandemic announcement? Wondering if your organization has the right to cancel or terminate its own contract commitments related to upcoming events given the suggested restrictions on group gatherings?
The first thing to understand is that there is no common law right to cancel a contract based on an act of God, sometimes referred to as ‘force majeure’. Any such right must be expressly set out in the terms of your contract, so you will have to do the analysis on a case by case basis. Such clauses typically cover unexpected events such as strike, fire, flood. We have yet to come across a force majeure clause that specifically addresses the potential for a global pandemic – if your contract contains such a provision then well done, we’d love to hear from you!
Another thing to keep in mind is that as it currently stands, the restriction on large gatherings is not law imposed by a governmental authority, nor do these guidelines constitute ‘frustration of contract’ – in essence it is still possible for the contractor to perform. This may mean that you don’t have a contractual right to terminate the contract without penalty. Seek legal advice in the event your contractual rights and obligations are not clear, and work with your contractors and suppliers to come to a resolution that will result in the least harm to all parties. This turn of events was clearly beyond the expectation of either party when the contract was entered into, and the value of maintaining good working relationships and helping suppliers remain afloat in times of hardship cannot be overstated.
In the meantime, it may be wise to revisit your current force majeure clauses with your favorite lawyer so that your organization is better prepared for what can no longer be viewed as an ‘unforeseen’ event.
BLG law firm provides a more comprehensive look at this issue in their recent newsletter.
With respect to how to identify and exercise specific rights to terminate contracts, you may find it useful to review this article originally published in our January 2019 newsletter.
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Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.
Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.