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18 March 2020

A force to be reckoned with – a brief guide to COVID-19 and force majeure

As the global coronavirus pandemic continues to impact our day-to-day lives, businesses may become concerned about their ability to perform contractual obligations as a result of the disruption caused.

In this article we provide some answers to common questions on the principle of ‘force majeure’ and how it applies to the current pandemic.

What does force majeure mean?

Literally, force majeure is French for ‘superior force’. In the context of a contract, this phrase takes on a specific meaning. A force majeure clause acts to suspend (or extinguish) a party’s obligations under a contract on the occurrence of an event outside of the parties’ control. Such events are usually defined within a contract and called a ‘force majeure event’. On the occurrence of a force majeure event which triggers the clause, the party relying on the clause will not be liable if it does not perform its contractual obligations.

Is the coronavirus pandemic a force majeure event?

The wording of contracts can vary significantly from one to the other, so it will depend very much on what your contract says. A force majeure clause usually lists the events which would trigger the effects of the clause. The lists given may or may not be exhaustive and it is important to check so you can be clear on what is covered by the clause. The lists often include, for example, natural disasters, terrorist attacks, war, and pandemics. If the list is exhaustive, then the coronavirus pandemic will only be considered a force majeure event if pandemics (or wording to that effect) is specifically included. If the list is non-exhaustive (open-ended), then you may be able to argue that this pandemic is covered, even if it is not specifically mentioned.

What if a party cannot fulfil its contractual obligations because of the coronavirus pandemic?

This will depend on the phrasing of the force majeure clause. The mere existence of a force majeure event may not excuse a party from its contractual obligations. Usually the clause will require that the force majeure event must either cause, prevent or be attributable to a delay or failure of a party to perform its obligations.

Whether or not the coronavirus pandemic prevents a contract from being performed depends on the industry and specific circumstances of the parties. Take, for example, a lecturer who contracted with a university to fly into London and give a talk, and subsequently the government enacted a law banning all air travel in order to restrict the spread of the virus. This would prevent the lecturer, due to fly, from performing her contractual obligation. We would recommend keeping a close eye on government announcements and consider how developments may impact your contractual obligations.

How long does force majeure apply for?

Force majeure clauses usually allow for the suspension of one or more parties’ obligations for a set period of time, which would be given in the contract. This could be, for example, as long as the force majeure event continues, or for a given number of months or days. Once that period has come to an end, the contract will be re-activated.

If the force majeure event is still prevailing and is hindering the parties’ performance at the end of a designated period, you can check the contract as it may be drafted in a way which allows a party to terminate the contract in such circumstances.

What if there is no force majeure provision in the contract?

If your contract does not contain a force majeure clause (or the clause does not cover pandemics), the common law principle of ‘frustration’ may apply to protect a party who is no longer able to comply with their obligations. Frustration applies when an unexpected event occurs, which is beyond the control of the parties, causing it to be either physically or commercially impossible (rather than just more expensive) for a party to comply with its obligations under the contract. Frustration also applies where such an event changes a party’s obligation to something completely different from what was envisaged at the time when the parties entered into the contract. In both cases, however, the requirements are strict, and successfully claiming that a contract has been frustrated can be difficult in practice. If the contract has not been frustrated then, as a general rule, if performance of a contract becomes more difficult or even impossible, the party who fails to perform is liable in damages.

Frustration is a complicated legal topic requiring a detailed analysis of the particular circumstances in each case. If you are concerned about this, do get in touch and we can provide further advice.

What else should I look out for in a force majeure provision?

It is worth noting that the burden is on the party seeking to rely on the force majeure clause to prove that the event falls within the clause and that their non-performance is due to that event.

Additionally, we advise that parties bear in mind that in order to be able to rely on the force majeure clause, early engagement between the parties is often essential.

For further advice please do not hesitate to contact Dennis Lee, Daisy Fulton or the commercial team at BDB Pitmans.

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