COVID-19 & Your Business: Does Your Commercial Contract Contain A Force Majeure Clause?
The unprecedented events currently taking place worldwide as a result of the spread of Coronavirus (Covid-19) have led contracting parties to consider their position, their obligations and particularly if they can rely on a Force Majeure clause. Parties will also need to know how to respond if a contracting party seeks to assert a Force Majeure clause, and indeed whether they can dispute it.
What is a Force Majeure clause?
Force Majeure is French for superior force. A “force majeure” clause will be drafted in such a way that it will typically suspend or extinguish a party’s obligation to perform the contract in specific, and generally in so-called emergency, circumstances. An emergency circumstance will apply in cases of natural disaster, epidemic, changes in the law, and similar designated circumstances. The COVID-19 crisis has been officially defined as a pandemic and therefore is a Force Majeure event.
A Force Majeure clause needs to have been specifically included within your commercial contract for you to rely on it. It cannot be implied or assumed to take effect but must be expressly worded within the contractual terms. Most English contracts, particularly within the construction industry, will have them included. We can advise you if you are unsure if your contract contains a Force Majeure clause.
Can I rely on the Force Majeure clause?
Assuming your contract has a Force Majeure clause, which either specifically references an epidemic or an emergency circumstance, you will need to assess if you can rely on it. Clearly there will be a multitude of factors that will affect your decision as to why you may wish to rely on the clause but specifically COVID-19 will have to be the sole cause of a party’s inability to perform its obligations; if not, and there are other causes, case law suggests that the clause cannot be relied upon.
You will need to carefully analyse the construction of the clause, consider it in the context of the COVID-19 outbreak and assess its direct impact on you or your contracting party’s failure to perform the contractual terms of the contract. You will need to consider if it prevents performance or makes it more difficult. If you are unsure as to the enforceability of your Force Majeure clause we can advise you.
What does a Force Majeure clause do?
The effect of the clause will depend on its specific wording, however, generally it will entitle a party to suspend performance of its obligations without being penalised. The contract should determine whether this is for a particular period of time or indefinitely, and what the options are for the parties; this can include the right for one or both parties to terminate the contract if the Force Majeure event has continued for a specified period of time. If the clause does not specify what action should be undertaken the parties should consider how to mitigate their losses and notify the other party of its intention to rely on it. We can advise you as to how you should do this.
How do I assert a Force Majeure?
Again this will largely depend on the wording of the Force Majeure clause, for example there may, for instance, be a requirement under the contract’s Force Majeure clause to give notice as soon as a Force Majeure event occurs. Alternatively, the clause may make reference to an immediate termination of the contract or its suspension. If there is no specific wording it would be sensible to notify your contracting party of your intention to rely on the clause to see if an agreement can be made. Please get in touch so that you can take legal advice as to the terms of the notice.
What if my contract does not have a Force Majeure clause? The Law of Frustration.
If your contract does not include a Force Majeure clause you may consider if the doctrine of Frustration applies. This can apply without specific reference to it in a contract and allows a contract to be set aside where a completely unforeseeable event makes the clear overriding intention of the contract absolutely impossible to perform. This will need to strike to the core of the contract making its performance impossible rather than being commercially undesirable. Legal advice will need to be obtained to assess its application, however, such an example could be the closure of a venue by the government as a result of the Coronavirus outbreak which causes the Frustration of a time imperative contract.
Written by, Jerome Soucek, Associate Solicitor at Bennett Griffin LLP
Other articles in this series:
- Commercial Lease Rent Payments, Enforcement
- Buildings Insurance, Lease Covenants
- Delays to Commercial Property Transactions
- “Exit” options in existing Leases
Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.
If you require legal advice on any of the above matters please do not hesitate to contact our Dispute Resolution Solicitorsby calling us on 01903 229999 or by completing the contact form below. Once in touch can arrange a regular telephone conference or video call.