Coronavirus – What happens if you breach your commercial contract due to Covid 19?
As Coronavirus cases hit numbers nearing 500, businesses in the UK are starting to fear being unable to meet their contractual obligations for various reasons such as staff shortages, restrictions on travel and supply chain issues.
The question is whether businesses can rely on Force Majeure in order to avoid being liable for breaching their contracts.
What does Force Majeure Mean?
The term Force Majeure is used to describe unforeseeable circumstances that prevent a party from fulfilling a contract. Based on this definition, it would seem that Coronavirus could potentially be described as a Force Majeure event, however, it is not as simple as it seems.
Does the contract contain a Force Majeure Clause?
Firstly, in English Law, parties can only rely on Force Majeure if it is written into a contract. There is no general principle of Force Majeure that can be implied into a contract. If a party does not have a contract containing a well drafted Force Majeure clause it cannot seek to rely on Force Majeure.
Is Coronavirus a Force Majeure Event?
When deciding whether Coronavirus is a Force Majeure event, the terms of the contract will be carefully considered. Some clauses provide a list of what constitutes a Force Majeure event (usually listing events such as flood, earthquake or act of god) whereas others give a blanket definition. Words such as “epidemic” may be found in Force Majeure clauses and may have to be analysed by the courts.
How will a Force Majeure Clause be construed?
In the UK, Force Majeure is construed rather strictly. The party seeking to rely on Force Majeure must show that an event has taken place which is beyond its control and which has prevented or delayed the performance of a contract. The party must also show that they have taken reasonable steps to mitigate the consequences. What’s clear is that there are bound to be legal disputes surrounding this issue as the country faces economic disruption.
Danielle Ward, Senior Associate in the Company Commercial department at Mullis & Peake LLP said:
“There is no doubt that businesses will be concerned about the impact that Coronavirus will have on their contracts for the foreseeable future. It is important that legal advice is sought prior to entering into legal contracts to ensure that your interests are protected. I would also advise businesses to obtain legal advice before seeking to rely on a Force Majeure clause or if they are considering rejecting another party’s reliance on such a clause”