Coronavirus – a force majeure event?

On behalf of Attwaters Jameson Hill posted in Dispute Resolution on Tuesday, March 17th, 2020

The COVID-19 outbreak is wreaking havoc on businesses across the nation, leaving many worrying about what would happen if reduced staff numbers or forced shutdown meant they were unable to fulfil their contractual obligations. As a result, companies are asking the question: would a ‘force majeure’ clause in their commercial contracts cover business interruption as a result of coronavirus?

 

What is force majeure?

Force majeure refers to the occurrence of events beyond the control of the parties in a contract, such as natural disasters, war or industrial action, that prevent one of the parties from carrying out its contractual obligations. A force majeure clause in a contract will usually stipulate that the defaulting party should not be held liable if a listed force majeure event either delays or prevents them from completing the contracted work.

Due to the extent of coronavirus chaos, then, and new government advice on self-isolation that could lead to widespread staff absence, it’s unsurprising that many businesses are wondering whether coronavirus could be included under a force majeure clause. Indeed, since early February, the China Council for the Promotion of International Trade (CCPIT) has issued thousands of ‘force majeure certificates’ to Chinese companies impacted by COVID-19, to help them argue the position that the coronavirus pandemic is “unforeseeable, unavoidable and insurmountable force majeure.”

 

Does the force majeure clause in my contract cover coronavirus?

Force majeure has no independent, recognised meaning under English law, meaning its principles are not automatically applied to commercial contracts; rather, the precise wording of the clause in each individual contract will stipulate what is or isn’t covered. Due to the recency of the outbreak, it is unlikely that any force majeure clause will explicitly list coronavirus or COVID-19. However, the clause may specifically refer to terms such as epidemic, pandemic, government intervention, quarantine, disease, etc., which would support the defaulting party in claiming that COVID-19 is indeed covered by the clause.

If no wording to this effect exists, then it will be up to the defaulting party to prove that an event such as coronavirus was not ‘reasonably contemplated’ at the time of making the contract, and that the outbreak and the resulting impact on the defaulting party’s ability to carry out its contractual obligations was ‘beyond [the party’s] reasonable control’.

 

What if I don’t have a force majeure clause in my contract?

If your business has been hit by the coronavirus outbreak to the extent that you are unable to fulfil your contractual obligations, and you have no force majeure clause, you could be sued for breach of contract. Under these circumstances, it may be possible to avoid liability through the law of ‘frustration of contract’, which refers to a contract that has become impossible to perform due to a ‘supervening event’. Frustration can be very difficult to prove, however, which is why companies being sued for breach of contract often require the services of expert dispute resolution lawyers to argue their case in court.

 

Expert Dispute Resolution specialists

Here at Attwaters Jameson Hill, we have decades of experience in helping companies prove force majeure claims, as well as assisting those being pursued for breach of contract. We also work closely with our Company and Commercial team, who assist businesses in drafting high-quality, precisely worded commercial contracts that look after their interests in the case of unforeseen and uncontrollable events. If you are facing a business dispute due to the coronavirus outbreak or are seeking advice regarding the inclusion of a force majeure clause in your commercial contracts, please get in touch with our expert teams.

[1] https://www.natlawreview.com/article/coronavirus-and-force-majeure-clauses

 

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