Is Coronavirus a force majeure?
The force majeure clause is one which lies unnoticed and neglected in many contracts, often only added as a boilerplate provision or at the last minute, with everyone safe in the “knowledge” that they will never have to look at it again. Its moment in the spotlight has arrived and it is about to come into its own. Maeve England, partner in our Dispute Resolution team explains more.
We are in unprecedented times. With the government banning mass gatherings, and following its decision to close pubs, restaurants and theatres, many clients are contacting us anxious to know whether they still have to perform contractual obligations which have become impossible or extremely difficult. Will the force majeure clause in their contract provide any respite and if not, what can they do?
If someone cannot perform their obligations under a contract, the starting position is that they are in breach and liable in damages. However, what if an event occurs which is completely unforeseen and outside the control of the parties?
In some cases, the contract may be able to be discharged on the ground of “frustration”. The doctrine of frustration, also known as the doctrine of supervening events, may intervene when an event occurs which renders a contractual obligation physically or commercially impossible to perform or which transforms the obligation to perform into a radically different obligation to that contemplated by the parties when they entered into the contract. If the doctrine does apply, then parties will be discharged from their obligations.
That sounds like good news. However, the doctrine is over a hundred years old and its application by the courts is uncertain. Most commercial clients will understandably not want to go to court in reliance on an uncertain ancient doctrine. For that reason it has become standard practice to insert a force majeure clause into commercial contracts. The real question for most commercial clients therefore will be whether the force majeure clause lurking somewhere at the end of their contract will work for them.
The answer to that depends on what it says in the force majeure clause and elsewhere in your contract. What is the definition of a “force majeure” event? Does it include pandemics, or government actions? The clause should define the event, but also what will happen to any obligations and to the contract.
If you would like advice on how coronavirus will affect your contracts, contact our Dispute Resolution team on 01225 750 000.