Coronavirus (COVID-19) is having a significant impact on the ability of businesses and individuals to perform their contractual obligations. A common question being asked is whether commercial parties can invoke the force majeure clause in their contracts in light of the pandemic.
What is ‘force majeure’?
Typically, a force majeure event is defined as an event which is beyond the reasonable control of the affected party and which results in the affected party being unable to perform its obligations under the contract. A force majeure clause provides that in the case of a force majeure event, the non-performance of the affected party is excused.
Under English law, force majeure is not a defined term and the parties are able to negotiate what will amount to a force majeure event for the purposes of their contract. The concept of force majeure will not be implied into a contract, therefore in order to rely on this provision it must be a clause within your contract.
How will a force majeure provision be interpreted?
The courts will look to the wording of a force majeure provision to determine whether it can be relied upon by the party seeking to invoke it.
Firstly, force majeure clauses often contain a non-exhaustive list of events that will constitute a force majeure event, such as: “including (without limitation) acts of God or natural disaster, epidemic or pandemic, wars, strikes, riots, or acts of domestic or international terrorism”. Case law has determined that for an event to fit within the general wording of such a clause, it must be of a similar nature to the events listed within the clause. Where the term epidemic, or pandemic, has been used, that will clearly cover Covid-19.
Secondly, force majeure provisions usually require the affected party to demonstrate that the force majeure event “prevented” it from performing its contractual obligations. “Prevented” means that it must be physically or legally impossible to perform. This is a high standard. It is not enough that performance is more difficult, more expensive, or less profitable. In contrast, some contracts use words such as “impede”, “hinder” or “delay” performance. These force majeure provisions will generally be satisfied if performance is substantially more onerous. However, a mere increase in the cost of performing a contract affected by Covid-19 may still not be sufficient to trigger a force majeure even with wording of this kind.
Thirdly, the court will consider causation and whether the force majeure event is the sole cause of the affected party’s inability to perform its contractual obligations. If it is not, case law suggests that the affected party may not be able to rely on the force majeure clause. Causation will be the key disputed factor in upcoming Covid-19 force majeure cases as it will need to be determined whether social distancing measures, lockdown requirements, travel restrictions and consequential lack of available materials and/or employees prevented an affected party from performing its contractual obligations.
Steps to take if seeking to rely on a force majeure clause:
- Carefully consider the wording of the clause, the contract as a whole and the circumstances which have led you to seek to rely on the clause.
- Explore alternative options to enable you to perform your contractual obligations, such as using alternative suppliers, or methods of delivery.
- Serve any notices as required under the contract in line with the contractual notice provisions.
- Do not try to rely on increased costs as a reason for non-performance.
- If there is no force majeure clause in your contract, consider frustration as an alternative legal remedy.
If you require advice, please contact our Corporate and Commercial Team on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.