Coronavirus and Force Majeure

With the Covid-19 situation evolving each day, and cases in the UK increasing rapidly, we are already regularly speaking to businesses about how their supply chains are being affected.

A key question from most businesses is around what happens to the parties’ contractual obligations during this period and whether anything can be done by either side to reduce or exclude their liability if they are prevented from carrying out their obligations due to the outbreak.

Force Majeure

Depending on the exact wording, a force majeure clause will relieve a party where it is impossible or substantially more difficult to perform its obligations due to the occurrence of certain events beyond their control. The clause might list specific events that are deemed force majeure events and also a catch-all along the lines of “any other event beyond a party’s reasonable control.”

Events such as war, terrorism, natural disasters, strikes, and government action will usually be included. It is also common to specify diseases, pandemics, epidemics, and health emergencies.

If the clause doesn’t include them, you may be able to rely on the more generic wording, supported by status updates from the World Health Organisation (WHO) or Public Health England, for example.

The WHO designed the outbreak as a “Public Health Emergency of International Concern” which “implies a situation that: is serious, unusual or unexpected; carries implications for public health beyond the affected State’s national border, and may require immediate international action.” This may be sufficient to show that the outbreak is beyond a party’s reasonable control.

Force majeure is a contractual term and has no recognised meaning in English law, which means that the clause will be interpreted with regard to its exact words. If the clause is not clear enough then it is unlikely to be enforceable.

Judgements in the courts have held that clauses which refer to a party being ‘prevented’ from performing its duties mean that it must be impossible rather than difficult or costly to do so, and ‘delayed, impeded, or impaired’ means being significantly more onerous, and the cost is again not a factor.

The success of a party in arguing for relief from its obligations will ultimately depend on the impact of the coronavirus outbreak on the performance of its specific contractual obligations and the precise wording of the force majeure clause.

Frustration

If your contract doesn’t have a force majeure clause, the courts will not imply one but you might be able to rely on the doctrine of frustration, which as a common law right does not need to be drafted into a contract.

The frustration which allows contracting parties to terminate a contract automatically when an event occurs which makes a fundamental part of the contract either impossible to perform or radically different to what was originally envisaged.

The hurdle of proving frustration is significantly higher than that of force majeure, and the courts will not grant a claim for frustration where there is provision for the event (eg a force majeure clause) or another method of performance is possible.

We Can Help You

Please contact David Sloman if you would like any advice about your contracts.

Alternatively, if you or your business require advice or need assistance for any corporate matters, please get in touch with our specialist Corporate & Commercial team through this website or by calling 0330 404 0778.

This information is correct at 3.30pm on 10 March 2020.