Joram Moyal participates in the IR Virtual Series – International Contracts: How has the global pandemic impacted international contracts?

Joram MoyalPartner, Moyal & Simon Law S.a.r.L

Foreward by Andrew Chilvers

The COVID-19 pandemic is one of those once-ina-lifetime events that few people predict but which affects everyone – individuals, businesses and governments.

During the past four months the pandemic has caused huge disruption to companies across the globe as many have suddenly found it impossible to fulfil their contractual obligations. From retail and the construction industry to hospitality and manufacturing, every area of the world economy has suffered.

As a consequence, lawyers and their clients are now rushing to look more closely at the force majeure doctrine as an option for businesses that are no longer able to perform their contractual obligations.

Different legal systems have different legislative definitions for force majeure. For instance, English common law – unlike in civil law – has no universal definition. The ability of a contracted party to invoke force majeure will depend on the presence of a force majeure clause and the particular terms set out in the contract.

Can force majeure justify a suspension of performance or the unilateral imposition of new deadlines or cancellations of purchase orders?

Under Luxembourg law an external event alone will not be enough to qualify it as force majeure; other conditions must be met.If force majeure is not contractually defined between the parties, then it must fulfil three criteria:

• extériorité (exteriority) – meaning that the event was external and not connected to either the contracting parties;

• irrésistibilité (unpreventability) – meaning that the impact of the event could not be mitigated by taking appropriate measures; and

• imprévisibilité (unpredictability) – meaning that the event could not have been foreseen at the time of the conclusion of the agreement and that there was no reason to believe that it would happen.

Imposing a new deadline would, however, only be possible if the delivery was not time sensitive. Otherwise, the purchase order needs to be cancelled.

Does the COVID-19 crisis and possible breach of international contracts fundamentally alter assumptions surrounding risk allocation, supply chains and access to markets?

With the current pandemic, contractors should take the possibility of the pandemic into account and which was an unpredictable event now becomes predictable, ruling out the recourse to a force majeure event.

Where a contract does not contain a force majeure clause, how simple is it for parties to consider the doctrine of frustration? In which jurisdictions would this apply?

As outlined above, force majeure is part of Luxembourg law and could be taken into account even if not part of a contract.