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Calling ‘Force Majeure’ Due to Covid-19

By Saturday 25 April 2020 April 29th, 2020 No Comments

By Will Taylor,Wine Partner, Finlaysons

What if you have a substantial wine supply agreement with a foreign importer and the importer “calls force majeure” under the contract to avoid their obligation to take delivery of a significant volume of wine on a certain day?

The first thing to do is to check the law of which country governs the contract. Hopefully, it is the law of Australia.

If it is, you need to consider carefully the wording of the force majeure provision. Such clauses differ quite markedly and the specific wording will determine the meaning in each individual case.

Normally, to successfully invoke a force majeure clause, performance of the contract must be impossible. Therefore, the buyer will not be entitled to invoke the clause just because the market has collapsed or it is uneconomic for them; it must actually be impossible for them to take delivery.

Wine industry contracts often include “disease” as a force majeure event and they commonly refer to an “act of God” (which may well include Covid-19). However, to trigger the clause, the disease would usually have to be the direct cause of the impossibility of performance, not some intervening human event, such as an act of Government responding to the disease. But “act of Government” is also often a defined force majeure event so, again, you need to consider the wording of the clause very carefully.

The buyer might argue that they cannot take delivery of the wine due to their inability to ship it. “Unavailability of transport” or “shipping disruption” are often defined force majeure events under wine supply contracts. However, although it is a matter of construing the contract, the fact that shipping is delayed for a relatively short period, but not ultimately prevented, would not usually allow a party to avoid performance altogether. In fact, many force majeure clauses expressly allow performance to be suspended, but require it to be discharged once the impediment is removed.

Interestingly, by early March 2020, the China Council for the Promotion of International Trade was reported to have issued more than 3,000 “force majeure certificates” to companies seeking to suspend or avoid performance (and legal claims). That may have an impact where the contract is governed by Chinese law, but we would not expect it to alter the analysis under Australian law.

The bottom line is that you need to carefully consider the wording of the particular clause in the context of the particular contract and the governing law. Having said that, we understand that, as of late April 2020, stock is being shipped, so it may be difficult to sustain a force majeure claim, of the type discussed above, in the current circumstances.

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