Is Covid-19 a Force Majeure Event? Frustration of Contracts
As Covid-19 (Coronavirus) continues to unfold and develop, businesses around the world are becoming significantly affected by the global pandemic. Due to this, obligations within clauses are now being looked at under a proverbial microscope.
Whether it is you who are now struggling to meet the demands written within a contract, or the other party, a force majeure clause can avert any breach of contract claims.
What is force majeure?
Within most UK contracts, a force majeure clause can typically be found which details alterations on parties’ obligations when the unusual occurs. This clause can come into play when an extraordinary event beyond a party, or parties, control prevents them from fulfilling their contractual obligations.
Whether Covid-19 classes as a force majeure event or not will be identified on a case-by-case basis and will help to mitigate any breach of contract claims during these uncertain times.
Although each contract will have to be reviewed separately due to the complexity of the situation, there are several recommendations to help determine whether a force majeure claim could be implemented.
Time to Scrutinise your Contract:
- Under the pre-written force majeure clause, look out for specific terms which could cover the Covid-19 pandemic; 'events beyond the parties control,' 'epidemic,' 'following government instructions,' or 'Acts of God.'
The latter phrase often refers to an all encompassing form of force majeure. For an 'Acts of God' force majeure to be enacted, the event must not only be out of the control of the acting party but, also, out of the control of humanity.
- Other terms may also be used, including a list of specific events such as 'earthquake, hurricane, tsunami' which would suggest the list is exhaustive. But, for the more unambiguous and broad contracts, an element of interpretation is needed to determine whether the parties intended for an event like Covid-19 to be covered.
- After identifying whether your force majeure clause contains the aforementioned words, it is then essential to note whether that is followed by the 'prevent,' 'hinder,' or 'delayed' term.
The ‘prevented’ clause: This refers to a service which can no longer be performed as it is physically or legally impossible. This does not refer to heightened difficulty in delivery of the service or any other reasons related – but, that it is not possible to perform at all.
The ‘hindered’ clause: This refers to a situation where a performance of a service or delivery is slightly less than due to the current situation. But, where a party is claiming to be hindered when the difference is primarily lower profit margins, this is unlikely to be enough for them to be excused.
The ‘delayed’ clause: This is more straight forward as the appeal is easier to prove, just the time scale of which the service is to be delivered can be excused with correct evidence of reason behind the delay.
Next Steps - Recommended Stepts to Determine if Covid-19 Amounts to a Force Majeure
There are several steps you can take to determine whether a force majeure clause could potentially be enacted.
Again, every contract and contractual provisions should be reviewed on a case-by-case basis. However scrutinising your contract to establish what your force majeure clause entails (as above) will be the first place to start.
1. Speak to the opposing party upon learning that your service may be altered, disrupted or halted.
2. Scrutinise your contract for the terms above. In knowing which terms are included in your contract, it could determine whether you have a claim or otherwise.
3. Make a note of which services or contractual obligations have been affected and how these have been restricted or prevented. The acting party must be able to show that their lack of service or deliverance was due to circumstances completely outside of their control.
4. At what point in time did the prevention, hinderance or delay occur? Could these events have been avoided? Could other alternatives be found to resume the service?
For a force majeure claim to be enacted, the acting party must be able to show in detail that the situation which affected the service was not through any fault of their own, nor did they halt service due to it being merely more difficult or expensive to perform.
During these uncertain times, establishing whether you have a force majeure clause which includes Covid-19 is crucial and could help to lessen the strain your business(es) are under.
Considering the above in great detail, as well as looking closely at your contract, and keeping a documentary record throughout are practical steps to take if seeking an enactment of the force majeure clause.
However, there is no blanket diagnosis for whether Covid-19 amounts to a force majeure clause, due to the wording used in each individual case.
But, keeping a track of all necessary information pertaining to acts of service and performance, will leave parties in good stead for arguing for or against a force majeure or alternatively, a breach of contract claim.
As always the best advice is to seek advice and seek it early. For further information, or to speak to a member of our excellent team of Solicitors, you can contact 01482 616 616 or 0800 037 1305.
Please note that this article is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.