How Do You Define A “Pandemic”?
Key Contact: Rachelle Sellek
Clauses in contracts such as force majeure, business continuity and material adverse change are increasingly attempting to deal with the threat of a pandemic and to minimise its effects on a party’s business. However, how is a “pandemic” defined?
You may think that it is obvious and that given our recent experience with dealing with COVID-19 restrictions we will all know a pandemic when we see one. But it may not be that simple and careful drafting is required to ensure that the contract does what you want and expect it to do.
The classic definition is that a pandemic occurs over a wide geographic area and affects an exceptionally high proportion of the population. Various dictionary definitions offer variations on this theme suggesting a disease prevalent over a whole country or the world. However, this is very similar to the definition of an epidemic with the suggestion that a pandemic is a type of epidemic that has wider geographic spread. On 24 February 2020 the World Health Organisation (WHO) said a pandemic is “the worldwide spread of a new disease”.
Given that the effect of a force majeure clause is to relieve a party of liability if affected by a force majeure event you can see the importance of getting the definition correct. Seasonal flu epidemics can be said to occur annually and can cross international boundaries. However, in most years you would not expect seasonal flu to relieve a party from liability.
In the case of COVID-19, the World Health Organisation declared the outbreak a pandemic on 11 March 2020 accepting that it had spread worldwide by that point. The point at which the WHO declares a pandemic is definitely one that offers legal certainty. But, national lockdown restrictions had been imposed in Italy and China before the WHO’s declaration and local lockdown restrictions had also been imposed in specific areas of Italy before the national ones. Does that mean that a pandemic didn’t exist before 11 March 2020? If the WHO’s declaration of a pandemic was used in the definition of a force majeure event in a contract would that mean that businesses affected by national or local lock down restrictions would be unable to take advantage of the force majeure clause to relieve them of liability if they are unable to meet their contractual obligations as a consequence?
We are currently in the midst of the COVID-19 pandemic. For new contracts entered into since the current pandemic was declared will the parties be able to take advantage of a force majeure clause if they are prevented from meeting their contractual obligations if they knew about the pandemic before they signed the contract? Does the definition of force majeure event also take into account new measures imposed to deal with an existing pandemic?
In the event of any dispute between the parties a court will need to pay regard to the terms of any written contract and a clearly drafted definition is always the starting point. If the definition is clear and unambiguous it should also be the ending point.
If you want any more information or would like to discuss a review of your commercial contracts please contact Rachelle Sellek in the Commercial team.
