The ICC updates its Force Majeure Clause in light of the COVID-19 outbreak

In March 2020 the International Chamber of Commerce updated the ICC Force Majeure Clause in light of the current outbreak of the COVID-19. 

Force Majeure 

Force majeure is a legal concept referring to an event or circumstance which prevents or impedes a party’s ability to perform its contractual obligations. In such a case, the affected party may invoke force majeure in order to be relieved from their obligations and avoid liability for their non-performance.

While the concept of force majeure exists in most civil law systems, it does not exist as such in common law jurisdictions, such as in England and the United States. In these jurisdictions, force majeure can only be invoked if the contract includes such as clause. In civil law jurisdictions where the concept can be applied automatically, it may be interpreted or applied differently depending on the national law and practice of the courts. For these reasons, particularly international contracts should include force majeure clauses defining the type of events and circumstances to be covered and setting out the consequences of such events and circumstances.

As force majeure clauses should be drafted carefully, the ICC has published the model clause to facilitate the drafting process for contractual parties. The clause can be directly incorporated as it is or be amended to the suit the specific needs of the contract. 

The new ICC Force Majeure Clause

The previous versions of the ICC Force Majeure Clause was published in 2003. In light of the COVID-19 outbreak, the ICC has now updated the clause to take into account circumstances, such as the current COVID-19 outbreak.  

The updated version now provides the Force Majeure Clause in two forms – the Long Form and the Short Form. While both cover the same essential issues, the Short Form version has a more limited scope and only covers the most important issues. It is therefore suitable for parties that prefer a shorter, limited clause. The Long Form covers the same essential issues, but provides additional guidance on issues which are not expressly addressed in the Short Form, such as failure to perform due to a default by a third party or unjust enrichment.

Unlike the Short Form, the Long Form specifically provides that a party which fails to perform their obligations due to the defaults by a third party may only invoke force majeure to the extent that the conditions for invoking force majeure are fulfilled both for the affected party as well as the third party. In addition, if a contract is terminated as a result of the impediment, the Long Form expressly provides that a party, which has received a benefit through the performance of the contract by the other party shall be entitled to be paid the value of that benefit. Such a provision ensures that if only one party has performed its obligations and the contract in the meantime is terminated due to force majeure, then that party is entitled to be compensated for its performance. This ensures that no party is unjustly enriched as a result of the termination of the contract.

Both versions of the ICC Force Majeure Clause furthermore provide a list of events which are to be treated as “Presumed Force Majeure Events”. Where this provision applies, the affected party only needs to prove that it could not reasonably have avoided or overcome the effects of the impediment. The affected party does therefore not need to prove the other two conditions; namely that the impediment is beyond its reasonable control and that it could not reasonably have been foreseen at the time of concluding the contract. Instead, these conditions will be presumed to be fulfilled, unless proven otherwise by the other party.

Finally, it is important to note that the ICC Force Majeure Clause can be amended by the parties to ensure that it is tailored to their particular needs, for example by including or deleting certain events from the list of presumed force majeure events. Either version of the ICC Force Majeure Clause can be incorporated directly into the contract as it is, or it can be incorporated by a reference. In the latter case, parties should specify whether they are opting for the Long Form or Short Form, given the difference in scope.

For more information on this, please contact Kneppelhout’s International Trade team.

 

COVID-19 Outbreak and Force Majeure

The outbreak of COVID-19 has severely impacted international trade and resulted in sudden disruptions to global supply chains.

Companies affected by the consequences of the outbreak are increasingly invoking force majeure clauses or being met with force majeure declarations. Before invoking such a clause however, it needs to be carefully examined whether the outbreak is in fact covered by the specific wording of the clause. In addition, companies should also consider the impact of invoking force majeure or receiving a force majeure declaration themselves on their insurance and other contractual arrangements.

For matters related to the COVID-19 outbreak, please contact Kneppelhout’s Corona helpdesk for International Trade and Logistics at:

Marc Padberg

mpd@kneppelhout.nl  

+31 (0) 6 520 503 75)

 

 

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