The COVID-19 pandemic will likely continue for some time. To help your business adjust to these uncertain times, each day this week we are posting on what to keep in mind concerning your business’s commercial contracts.
It’s likely we’ll see an increase in businesses attempting to rely on ‘force majeure’ clauses in order to alleviate some of their obligations during this uncertain time. If you haven’t already, our Commercial team’s recent article on the subject is well worth a quick read.
Force majeure clauses are usually buried towards the end of a contract. Their intention is to suspend or terminate contractual obligations in the event of certain circumstances beyond a party’s control – typically, they cover events such as fire, flooding, and nuclear explosion. Whether your business will be able to rely on a ‘force majeure’ clause to suspend its performance of an existing English-law contract will depend on that contract’s specific wording, since ‘force majeure’ does not have a set statutory meaning in English law and must be specifically defined in the contract.
Even if a force majeure clause doesn’t specifically refer to a pandemic or an outbreak of infectious disease, a party wishing to rely on it is likely to argue that other expressions used within it could cover the coronavirus fallout – so expect those customers or suppliers seeking to suspend performance of their obligations to make a case for relying on terms like ‘economic downturn’, ‘act of God’, or ‘outside a party’s reasonable control’. We’d recommend reviewing your key contracts and ensure you fully understand your rights and obligations under the relevant force majeure clauses. It may be that your customers or suppliers that try to rely on this may fall short of the requirements of the clause, since a party seeking to rely on it would usually need to demonstrate that coronavirus has adversely impacted on their ability to perform the contract. Often, the wording is that the event must have ‘prevented’ the performance, rather than merely hindered it. In many cases, then, this hurdle might be too difficult to rely on if COVID-19 simply made performance of a contract difficult or more expensive, rather than impossible.
We’d recommend keeping clear records of any relevant factual and economic evidence concerning the coronavirus fallout that you think is relevant to your commercial contracts, as these could prove useful when seeking to rely on or rebut a force majeure claim.
You can also find more coronavirus-related resources from Collyer Bristow here.