Coronavirus and Force Majeure
What is a force majeure clause?
Force majeure clauses are commonly found in commercial contracts and seek to suspend or excuse one or more parties from performance of their contractual obligations if an event occurs that is outside their reasonable control.
With the coronavirus outbreak now becoming a global concern as the disease spreads across Europe, it begs the question as to whether companies will be able to declare the epidemic a force majeure event.
What does ‘force majeure’ mean?
Rather unhelpfully, force majeure is a term deriving from French law and doesn’t have a recognised definition or meaning under English law. This means that any force majeure clause must be carefully drafted to include the specific types of events that the parties want the provision to cover, for example: fire, flood, industrial action or in the case of coronavirus, disease.
What if there isn’t a force majeure clause in the contract?
A force majeure clause cannot be implied, consequently, there will be no protection for parties without an express clause in the contract. Even if the contract does contain a force majeure clause, there is no certainty that a party will be able to successfully rely upon it.
In the absence of an express clause, the common law doctrine of frustration may apply in circumstances where a contract has become impossible to perform due to an unforeseen event. The effect of frustration is that a contract will be automatically discharged and the parties are excused from their future obligations.
Can I invoke the force majeure clause in response to the coronavirus outbreak?
The English courts have typically interpreted force majeure clauses strictly so it is not guaranteed that you will be able to successfully rely upon it. The clause will require careful analysis to establish whether it covers events such as “disease” or “epidemic”.
You would then need to show that you have been prevented, hindered or delayed from performing your obligations directly due to the coronavirus outbreak.
What should our business do?
If you are concerned about the impact of the coronavirus on your business, you should review your contracts and consider time limits and notice requirements under any force majeure clauses. The defaulting party is usually required to use its reasonable endeavours to prevent or mitigate the effects of the force majeure event so it is important that you take any appropriate mitigation steps before invoking the clause.
Going forwards, it would be sensible to consider whether your current force majeure clauses adequately cover potential eventualities outside your control that could prevent you from performing your obligations under any existing or future contracts.
If you would like to discuss the impact of coronavirus on your commercial contracts please contact our Commercial Team on 01908 396230.