Force Majeure and Covid-19. Does it automatically apply to a Contract?

Close up of the Signature section of a document

Force majeure events are usually defined as acts, events or circumstances beyond the control of the parties, for example, natural disasters, pandemics or the outbreak of hostilities. 

A force majeure clause typically excuses one or both parties from performance of the contract in some way following the occurrence of such events. Its underlying principle is that on the occurrence of certain events which are outside a party’s control, that party is excused from, or entitled to suspend performance of all or part of its obligations. That party will not be liable for its failure to perform the obligations, in accordance with the clause.

The concept of force majeure is derived from civil law and is not fully recognised under English common law, therefore it should always be fully defined within the terms of a contract. 

The first therefore place that you should look to see if force majeure applies to the current Coronavirus situation is in the wording of the contract itself.

Clearly, if pandemic or other such heath emergencies are defined and the contract allows for the non-performance or suspension of the contract in these circumstances, either party is entitled to rely upon the same.

What is less clear, however, is if the current pandemic is not defined within the contract and one party seeks to rely upon, for example, government sanctions in suspending travel, contact and the like. One then has to look further at the provisions of the force majeure provisions. Contracts might, for example, refer to events or circumstances “beyond the parties’ reasonable control”. Determining whether this covers issues arising from Covid-19 is a question of interpretation and is fact-specific.

In unprecedented circumstances like the present, our view is that the courts are likely to be generous in their interpretation of this sort of wording when faced with parties who have encountered genuine difficulties in performing. However, it is likely that such parties will still need to show that their non-performance, or late performance, was truly outside their control and could not have been prevented or mitigated.

A party seeking to rely on a force majeure clause must also show that:

  • the force majeure event was the cause of the inability to perform or delayed performance;
  • their non-performance was due to circumstances beyond their control; and
  • there were no reasonable steps that they could have taken to avoid or mitigate the event or its consequences.

As a result, where a party anticipates falling into difficulty with meeting its obligations, for example due to staff shortages through self-isolation in accordance with government guidelines or issues with the supply of materials, it is crucial to explore whether alternatives, such as alternative sources of labour or materials, are reasonably available – including at higher cost, unless this involves breaching existing contracts. It is not simply sufficient to rely on force majeure alone to renege on contractual obligations.


If you have a commercial dispute or need a contract for your business preparing, why not contact one of Alexander JLO’s expert commercial lawyers for a free, no obligation consultation and see what we can do for you?

 

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