We are currently in the midst of a global health crisis. An economic crisis may follow which will affect thousands of businesses throughout the UK and Ireland. Many businesses will be engaged in contracts for the supply of goods and/or services. The imposition of government lockdowns all over the world will result in an inability to perform these contracts and will inevitably lead to contractual disputes.
Force Majeure Clause
Businesses who have a Force Majeure clause in their contract may be protected from the obligations and liabilities in a contract due to the pandemic and subsequent lockdowns. Force Majeure literally means ‘superior force’ and in contract law it is invoked in contracts to protect against the consequences of an extraordinary event that could not reasonably be foreseen by either party such as a pandemic, an act of government, a war or an earthquake.
Whether a Force Majeure clause relieves a party of their contractual obligations will depend on the precise wording of the clause and the circumstances surrounding the particular contract.
Is Covid-19 a Force Majeure Event?
As this is such an unprecedented event there is virtually no case law on the application of Force Majeure clauses in relation to pandemics. A Court will, however, examine the wording of the clause and seek to determine whether it was the intention of the parties for the contract to cover such an ‘event’. In these circumstances, it is fair to assume that the current events fall outside anyone’s reasonable control and to that end, the Court may well decide that the intention of the parties was to make provision for such an event in the contract. It is therefore likely that Covid-19 would fall within the scope of a Force Majeure event.
What if there is a Force Majeure Clause in my Contract?
If you are unable to perform all or some of the obligations within your contract due to Covid-19 but have a Force Majeure clause in an existing contract then you may be excused from performing some or all of the contract, the contract may be delayed for performance or terminated. However, as the party seeking to rely on the Force Majeure clause you will be obligated to prove to the Court the effect of the clause in order to explain your failure to perform a contract.
The Court will consider whether the ‘event’ was beyond your control, that it prevented, hindered or delayed performance of the contract and that you had taken all reasonable steps to avoid or mitigate the event or its consequences. In doing this the Court will examine whether there were any viable alternatives that may have assisted in performance of the contract. The fact that performance of a contract was made more expensive by the ‘event’ will often not be enough to satisfy the Court that all alternative means of performance were pursued.
Again, we are in unchartered territory, so the approach of the Court is yet to be determined. However, in many cases businesses should be able to satisfy the Court that performance of their contract was made impossible by Covid-19 and the subsequent lockdowns.
What if there is no Force Majeure Clause in my Contract?
Force Majeure is not a right established in common law or in Statute, it therefore can not be implied into contracts by the Court. In a practical sense, this means that if you do not specifically have a Force Majeure clause in your contract you will not be able to rely on it to excuse your failure to perform contractual obligations.
Enforcement of a Force Majeure Clause
If the Court is satisfied that a Force Majeure clause excuses the failure to perform part or all of a contract it will not necessarily bring the contract to an end. The Court may order that performance be postponed, rather than simply terminating the contract. Often, the next steps to be taken will be specifically set out within the Force Majeure clause. Performance of the Contract will generally be required to be carried out after the ‘events’ giving rise to the Force Majeure have passed.
If you wish to enforce a Force Majeure it is important to seek legal advice promptly as time limitations may apply.
These are anxious times for businesses and we hope that we can be of some assistance in explaining your contractual rights and duties so that you can plan for the future. If you have any queries about Force Majeure clauses or any other area of contract law, please feel free to contact us. Our new live chat facility is also available.