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Covid-19 and commercial contracts: Force majeure

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The Covid-19 pandemic is likely to lead to a wave of disputes as to which party bears the risks of non-performance.  There are some key principles which commercial parties should consider in order to assess the likely outcome of any dispute before risking litigation, as highlighted in this series of blogs.

Can I deem the Covid-19 pandemic to be a force majeure event?

English law has no general rule of force majeure and so whether the Covid-19 outbreak is a force majeure event will depend on the drafting and interpretation of each specific contract.  Therefore, you will need to consider the following:

  1. Does the contract include a clause (which need not be labelled “force majeure”) which anticipates that there may be some sort of supervening event beyond the control of the parties that may affect the performance of a contract, and which provides contractual relief for one or both parties from performance of some or all of their obligations as a result?
  2. Does the contract’s concept of force majeure event as drafted apply to the Covid-19 crisis?  Some clauses will specifically refer to ‘epidemics’, ‘pandemics’, ’diseases’, ‘action taken by Government imposing a restriction’ or ‘non-performance by suppliers or contractors’.  Be careful as even if there clearly was a force majeure event, its effect will depend on the facts, i.e. did the event actually prevent, hinder or delay a party from performing an obligation?
  3. The general language of “Act of God” is said to mean “such a direct and violent and sudden and irresistible act of Nature as the defendant could not, by any amount of ability, foresee would happen, or, if he could foresee that it would happen, he could not by any amount of care and skill resist, so as to prevent its effect”. A pandemic, which involves no human agency, may well sit within such meaning.

What is the effect of invoking a force majeure provision?

Typically, if a force majeure event occurs, common provisions may:

  1. Excuse one or both parties from performing the contract, in whole or in part; or
  2. Allow one or both parties to suspend or defer performance.

Note that in most contracts, the affected party will also need to show that the force majeure trigger has prevented, delayed or hindered its performance. Other common provisions may require the affected party to:

  1. Take reasonable steps to avoid or mitigate the event or its consequences.
  2. Notify the other party and keep it informed.

What if we don’t have a force majeure clause?

If the contract lacks a force majeure clause, no particular relief will necessarily flow from situations the parties might consider force majeure and so a party who is now unable to perform may be in breach of contract, even if the party is not morally to blame.  Fault is not a requirement for breach, unless the contract says it is.  If the failure to perform is a breach, it will normally give the other party the right to claim damages, and possibly also the right to terminate.