Force Majeure and COVID-19: Legal risks of a double-edged sword

Key Messages

• Governments should work with companies to assess individual cases and circumstances.
• Short term arguments against force majeure can weaken future government claims.
• Government measures should be assessed for risk of exposure to breach of contract claims or under investment treaty obligations.

COVID-19 has caused the broadest and deepest health and economic impacts of any single non-war event since the Great Depression of the 1930s.The virus itself, and the governmental measures in relation to the virus, have now become woven into a singular event that cannot be easily or simplistically disaggregated for legal purposes. Both these components are unprecedented in scope and scale, and both will present challenges for companies and governments seeking to manage the impacts of the virus and government measures taken globally in response to it.

One issue that has quickly arisen is whether the COVID-19 event constitutes a force majeure under national or international law.

Governments will face claims of force majeure from companies in relation to performing their operations, while in many cases having to make similar legal claims to defend measures they have taken in response to COVID-19. This defense by governments may arise in contract disputes or in the context of investor-state disputes (ISDS) initiated by investors under international investment treaties. This makes force majeure, for many governments, a potential double-edged sword: companies will claim force majeure alleviates them of certain obligations towards government; and governments will claim force majeure alleviates them of certain obligations to private companies.