Does the recent Level 6 Influenza Pandemic Announcement Indicate a Force Majeure Event?

The World Health Organization (WHO) has announced a Level 6 flu pandemic, which may prompt many businesses to call a force majeure on their contracts. The Level 6 pandemic is being called by WHO because the swine flu (H1N1 virus) has developed into an out-of-control, world-wide pandemic and drastic measures must be taken.

The announcement came at 10:00 GMT in a closed-door meeting emergency meeting in Geneva, Switzerland -- representing the first time a Level 6 pandemic has been announced in 41 years. The last time such a pandemic was announced was in 1968 when the Hong Kong flu of 1968 claimed an estimated one million deaths.

The effect reaches far beyond the immediate impact on local, regional or global health. There is a lot of chatter in blogs and elsewhere about the effect on the global economy and the abilities of organizations to provide contracted goods and services. One of the ripple effects could likely be realized within many business contracts, under the force majeure clause.

A force measure usually indicates an Act of God, be it earthquake, landslide, flood, or any other act or occurance that is 'beyond human control'. Acts of Terrorism and other forms of violent conflict also would often fall under this same contractual provision.

A force majeure clause is usually placed within business contracts to allow one or more parties in a contract to stop meeting their obligations for that contract, because a situation has occurred that is beyond everyone’s control. Pandemics are typically listed as one of the reasons for calling a force majeure.

So how will this affect commerce and business contracts in place?

This could have significant (and potentially far-reaching) consequences that go far beyond the immediate impact of the moment. What would be the impact -- either regionally or locally -- from large numbers of employees at firms who have the flu?

Day-to-day performance levels of companies are already being affected - sometimes drastically - in parts of the world by high levels of employee absenteeism due to H1N1 outbreaks, either because employees are sick themselves or because they are caring for family members who are. Add to this the by still more employees who stay home to avoid getting sick.

With the world seemingly becoming smaller by the day, the far-reaching effects of this situation remain to be fully realized. There is no doubt that this will likely have a markedly negative impact on the global economy. Many experts are comparing the current outbreak of H1N1 virus to the 2003 outbreak of Severe Acute Respiratory Syndrome (SARS), which is estimated to have cost cost the region between $18bn and $60bn in lost output - or 0.5-2.0% of regional GDP (according to estimates by the Asia Development Bank).

As this story continues to unfold, it certainly seems that the time has already come for firms to review contracts that are in place to determine how this escalating situation could affect their operations and their abilities to provide goods and services. Likewise this situation should sound a gong within organizations concerning performing due diligence both on existing contracts and on future relationships and agreements. The impact on the operational security of organizations and the effect on the bottom line are too great not to assess how this situation may touch your organization.