Author: Claire Hellweg*
| Jurisdiction: International |
Topics: Defences |
Prior to the current COVID-19 pandemic, recent trends have indicated that international tribunals are reluctant to accept claims of force majeure as a valid excuse for not performing contractual agreements, as evidenced by the small number of accepted claims.[1] In 2003, the International Chamber of Commerce (the “ICC”) published a force majeure clause for parties to incorporate into their international contracts either expressly or by reference.[2] This clause “incorporates an impracticability standard,” where “an event must be (1) beyond the party’s control, (2) not foreseeable at the time the contract is signed, and (3) an event that could not reasonably have been avoided or overcome.” [3] Only the first two requirements are presumed to be met if a listed force majeure event occurs (such as war, an epidemic, a terrorist attack, etc.). [4] While this standard seems easier to show than an impossibility standard, the ICC still intended for this impracticability standard to limit a party’s ability to simply invoke a listed event to easily default on its contractual duties.[5] However, this might have been too restrictive on parties, as empirical information indicates that the large majority of all force majeure defenses are unsuccessful.[6]
In light of this data, it is uncertain how international tribunals will react to force majeure claims involving COVID-19. It will seemingly depend on the exact types of problems the party experiences as a result of COVID-19, as well as the exact language in the contract. The ICC did release a new force majeure clause in June, 2020, although it seems to just simplify the language of the 2003 clause while maintaining the underlying substance so it does not offer much new guidance.[7]
It will likely be challenging for parties to successfully claim relief from contractual obligations due to general economic hardship caused by the COVID-19 pandemic. Economic hardship is especially difficult to claim as a force majeure defense and the small number of successful claims of economic hardship illustrate international tribunals’ “rigorous and uncompromising approach” to these claims. [8] The underlying principle for this rigorous approach is the idea that parties must adhere to their contractual terms, regardless of economic hardship, because economic fluctuation is foreseeable, the risk of which should have been allocated by the contracting parties. [9]
While it may be difficult for a party to default on its contractual obligations due to general economic hardship caused by the COVID-19 pandemic, parties may have a greater chance of success if the contract specifically references the effects of a covered event like a pandemic. Instead of generally listing an “epidemic” as a listed event to try to cover for economic hardship, it would be more advantageous for the force majeure provision to cover specific effects caused by such events. For example, if the clause includes the word “quarantine” after “epidemic” or “plague,” parties are more likely to succeed in claims purporting they are unable to fulfill contractual obligations due to employees or management quarantining. [10] If the contract specifically lists this effect of the pandemic, instead of just the event itself, the affected party will have an increased chance to successfully claim a force majeure defense to default on its contractual obligations. [11]
[1] See Mahmoud Reza Firoozmand & Javad Zamani, Force Majeure in International Contracts: Current Trends and How International Arbitration Practice is Responding, 33 Arb. Int’l 395, 413 (2017).
[2] Int’l Chamber of Com., ICC Force Majeure Clause 2003, 2003 Int’l Comm. Arb. 7.
[3] Mark Augenblick & Alison B. Rousseau, Force Majeure in Tumultuous Times: Impracticability as the New Impossibility, 13 J. World Inv. & Trade59, 60 (2012).
[4] Int’l Chamber of Com., supra note 2, at 9.
[5] See id. at 8.
[6] See Augenblick & Rousseau, supra note 3, at 61.
[7] Int’l Chamber of Com., ICC Force Majeure and Hardship Clauses 2020: Introductory Note and Commentary, 2020 Int’l Comm. Arb. 2.
[8] See Firoozmand & Zamani, supra note 1, at 409-10.
[9] Id. at 410.
[10] Augenblick & Rousseau, supra note 3, at 74.
[11] See id.
*J.D. Candidate ’22, Columbia Law School.