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What Do Coronavirus and COVID-19 Have To Do With Contracts?

The novel coronavirus continues to spread, and thousands have been diagnosed with COVID-19. Beyond the toll of thousands infected and some hundreds dead, the global economy has been severely disrupted. Virtually every sector of the economy, every link in the global supply chain, has been affected by quarantines in China, Italy, and elsewhere. Legal professionals in every jurisdiction are seeing the big picture, and looking for ways to mitigate their clients’ risk. Where to begin?

“Act of God”

Usually called force majeure in legal contracts, this type of clause typically frees all parties to an agreement from some or all of the obligations of that agreement. An “act of God”, in the context of a legal contract, is usually a natural disaster or other unforeseen problem that is beyond the contract parties’ ability to control. Currently, that natural disaster has come in the form of the novel coronavirus and the spread of COVID-19. Across the globe, airports, offices, and ports are closing; events are being cancelled; supply chains are disrupted; middlemen are running out of goods to sell.

The impact of coronavirus has many businesses looking to their contracts to invoke the force majeure clause. Force majeure clauses create exceptions to the obligations that contract parties would otherwise be required to meet. These clauses appear in most contracts, but not all force majeure clauses are identical. Finding and identifying the specific force majeure language in a large body of contracts can take some time, especially if you have many third-party contracts.

Using The Right Tool

The benefit of a flexible tool like ContraxSuite is that anyone using the tool can adapt it to the immediate needs of any new geopolitical events. We have already deployed ContraxSuite in contract analysis projects related to GDPR, Brexit, and the end of LIBOR. Finding force majeure clauses in contracts is a similar problem, and one that a customizable platform can help solve efficiently and comprehensively.

Building The Right Team

Designing and implementing a solution for a problem like the coronavirus outbreak requires a “triad” of expertise. One element of the triad is a software platform like ContraxSuite that allows users to customize data fields for specific problems. Another is the subject matter experts – lawyers, project managers, technologists, and other specialists that design and develop the best methods for finding desired clause types. The third element of the triad is data scientists, who implement and refine data models and conceptual search regimes with comprehensive term sets.

A pre-built, static solution does not have the same flexibility as this “triad”. The problem with force majeure clauses, as with many aspects of contract drafting in the global economy, is that they represent a clause type that 1) occurs in virtually all contracts, but 2) can be written in many different ways, using many different synonymous or near-synonymous words and phrases (for example, the Latin phrase casus fortuitus or the French version, cas fortuit).

A multidisciplinary team, with a configurable platform like ContraxSuite, can lead the charge and answer the questions that CEOs, GCs, and lawyers are asking all over the world:

  • What are our contractual obligations?
  • Do the force majeure clauses in our contracts even cover epidemics like COVID-19?
  • Which of our agreements will be affected?
  • Do we need to give notice of business disruption to our partners?
  • How are our termination clauses written, in the event we can’t meet our contractual obligations?
  • Are warranties and representations affected by force majeure?
  • What are penalties if we do not fulfill SLAs?
  • What if some clauses that could be referenced with regard to the epidemic, actually appear in other areas of a contract?

Designing The Right Model

Any solution to a complex problem like finding force majeure clauses needs to incorporate targeted language. Does the contract mention “epidemics”? “Pandemics”? In an ideal situation, contracts would use one or both words. But even then, the occurrence of these words may not be enough by itself. A contract analysis platform, and the team that maintains it, must also be able to find explicit language that defines those words, and any other language that may occur outside of the force majeure section of a contract that may nevertheless also relate to epidemics. There is always a chance that critical language will appear in unexpected places in a contract.

Once a model is built, the workflow will proceed similarly to many others on the platform:

  • Upload documents to ContraxSuite. ContraxSuite identifies which documents are contracts.
  • Next, any contracts not already pre-classified by type will be identified (e.g., lease, sales contract, debt instrument, etc.)
  • Then, for each contract type (e.g., sales contracts), we can use ContraxSuite and our custom data model to identify the presence and location of any “act of god” or “force majeure” clauses.
  • Determine whether force majeure clauses explicitly mention “epidemics,” “pandemics,” or any conceptually similar ideas.
  • Ascertain whether contract language is standard, or whether it reflects custom negotiation. ContraxSuite allows users to search across a document set for same or similar clauses. This allows agreements to be clustered or bucketized for human review and potential remediation.

Conclusion

Any solution to the current need for contract triage will require specialized engineering in order to deliver high fidelity results. One size does not fit all. The spread of coronavirus has had a cascading effect on global markets, which means there is a need for comprehensive contract analysis with people and tools that know how to think outside the box. At Elevate, we supply the right “triad” of technology tools, data scientists and developers, and legal subject matter experts who know how to find the contract language that is most vital to any successful project.

 

About Elevate

Elevate is a global law company, providing consulting, technology and services to law departments and law firms. The company’s team of lawyers, engineers, consultants and business experts extend and enable the resources and capabilities of customers worldwide. In November 2018, Elevate acquired LexPredict, the legal AI technology consultancy that created ContraxSuite. More at elevateservices.com

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