Business Beware Do Not Invoke Force Majeure | FTI Consulting

Business, Beware: Do Not Simply Invoke Force Majeure

Corporate Finance & Restructuring | Forensic & Litigation Consulting

April 21, 2020

Papers

The devastating effects of global pandemic Covid-19 have left many businesses unable to perform contractual obligations and with no option but to invoke force majeure clauses. Unfortunately, Covid-19 is also being used by certain businesses to escape contractual obligations without the business’ inability to perform being directly related to events surrounding Covid-19.

This trend, if unchecked, could have a detrimental effect on the South African economy. In his address to the nation on 9 April 2020, President Cyril Ramaphosa urged businesses not to simply resort to force majeure or to stop paying their suppliers and rental commitments, as this would further negatively impact supply chains and the wider South African economy.

The decision to invoke a stay of performance of contractual obligations cannot be taken lightly and must be justified in law and fact. It appears that the focus and discussion on such clauses since the outbreak of Covid-19 has mostly been limited to legal analyses, with less consideration of the financial and commercial implications that should underly the decision to invoke a force majeure clause.

Consideration of these implications is vital in ensuring that it is legally sound and contractually justified to do so. Hasty notice of inability to perform without a proper commercial assessment could result in breach of contract and punitive damages claims that will add stress for a business long after the Covid-19 pandemic passed.


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