This is a difficult time when businesses are facing unprecedented challenges caused by the impact of the Coronavirus epidemic.
At times like this, many companies will be examining their contracts to understand their rights, obligations, and where risks and liabilities sit.
We at Devant are increasingly being asked whether the current epidemic, and the fallout from it, would qualify as a ‘Force Majeure’ event for contracting purposes.
Check these clauses in your contracts
You may want to check the relevant clauses in your contracts, and we hope you find the following advice helpful:
- The current opinion is that the virus outbreak, and resultant events such as lockdowns, are likely to constitute a force majeure event for contracting purposes.
- English law contracts must include a specific force majeure clause for the parties to be able to invoke force majeure relief.
- Whether you will be able to claim on this basis can depend on how force majeure is defined in your contracts. It is unlikely that your contracts have a specific provision relating to “outbreak of a disease or virus”, which would give you certainty that this situation qualifies. Most force majeure clauses are more general, referring to circumstances beyond a party’s reasonable control, or “natural disaster, flood, war and other acts of God”. It is likely that the current situation would qualify for most businesses, even with a more general definition.
- The clause may also specify the extent to which the event must impact performance before it qualifies as force majeure.
- For a party to successfully claim force majeure, it will need to show that it was the force majeure event, and not some other factor, that caused it to be unable to fulfil its obligations.
- If there is no clause it may still be possible to argue that the coronavirus outbreak has ‘frustrated’ the contract. The test for this is stricter than a force majeure clause.
Businesses have many challenges right now, and I’m sure contracts are not at the top of your list. However, paying attention to this now will help make sure you still have a functioning business when the current situation is over.
Consider your obligations
If you have a contractual obligation (to a supplier, partner or customer) that you are struggling to meet because of staff sickness, absence to care for children, home-working or other conditions arising from the outbreak, consider:
- Is your inability to meet this obligation likely to impact delivery of a key contractual deliverable?
- Can work be suspended until the situation is resolved, and then resumed? Or is there an absolute deadline that, once passed, renders your performance of the contract pointless?
- Does your contract specify particular notice provisions for claiming force majeure relief, or would you use the general ‘notice’ provisions?
- If you believe you will not be able to meet your obligation, prepare a formal notice to your counter-party as soon as possible, following the notice provisions in your contract, letting them know:
- The obligation you are unable to meet
- The precise reasons you cannot meet it
- The driver for these reasons which is beyond your reasonable control
- That you are claiming Force Majeure relief under clause [x] of your contract with them
- You may also want to let them know what you are doing to address the difficulties, and suggest a call to discuss a joint planning session to deal with the likely impact of delays.
- There are many complexities to force majeure that we do not have space to go into here, and this advice is obviously of a fairly general nature. If you need help working through this for your business, the team at Devant is here to help and advise you, from a position of legal knowledge and practical commercial experience.
Help if you need it…
If you would like assistance now or as the situation evolves, you can get in touch by emailing us at firstname.lastname@example.org or call on 0118 353 6000. Our team is here (virtually, if not physically!), to support you throughout these challenging times.
Consultant, Devant Limited.