Force Majeure and the impact of Covid-19 : a simple 5-step check for reviewing your business contracts in these times

COVID-19 has effected businesses, organisations and people alike. This blog outlines a 5-step check for reviewing your business contracts in these times. 

On 23 March 2020, the Prime Minister introduced three new measures to immediately:

  1. Close all shops selling non-essential goods and other premises including libraries, playgrounds and outdoor gyms, and places of worship;
  2. Stop all social events, including weddings, baptisms and other ceremonies, but excluding funerals.
  3. Stop all gatherings of more than two people in public – excluding people you live with;

Although these measures and others are due to be reviewed on the 16 April 2020, they place significant restrictions on businesses, organisations and people alike.  Carrying on normal trading, delivering on contracts or generally performing the services of your business will be difficult, if not impossible.  This situation is often referred to as force majeure.

In simple terms, this is when one or both sides of a contractual agreement through unforeseeable circumstances cannot complete their contractual obligations.

If you have contracts in place, you should be speaking with those you supply now in order to discuss the situation. Communication is vital and you do have options. Review your contracts by using our 5 step guide below.

Step 1

Is there an express force majeure clause contained within the contract? A force majeure clause will typically contain a list of matters that qualify as a force majeure event, so it is important to review the scope of this list and whether it would cover the current events. Does it expressly cover a pandemic, quarantine measures or travel restrictions? If it does not expressly cover pandemics, it is common for force majeure definitions to generally cover “any event beyond the reasonable control of the parties”.

Step 2

Does this apply to the contract as a whole, or a specific part of it? Some force majeure clauses may only cover a specific part within the contract, rather than the entire contract. It is important to identify what this clause covers, as some obligations may not be covered by force majeure and will still have to be performed (but see point 5 below).

Step 3

Does it say what happens when the force majeure clause is engaged? Does it explain the consequences of any of these force majeure events? Some clauses may delay or suspend the obligations, whilst some may give the option to terminate the contract or specific performance entirely. Does it permit termination? Or just suspension until the event has passed?

Step 4 

Does the clause require you to give notice? This is important because some clauses require notice to be given to the other party before it is engaged. Contracts may require a notice to be given immediately, and failure to this may mean that the ability to rely on force majeure is lost. It is therefore important to identify this as soon as possible. You also need to check the way the notice is required to be served. Does the notice need to be physically sent? Are you actually able to send the notice? Is the organisation due to receive notice capable of accepting it?

Step 5

If there isn’t a force majeure clause in your contract you may still be able to rely on the common law doctrine of frustration. It is possible to claim under the common law that the current situation is a supervening event which has brought the contract to an end and releases both you and your client.

The point is, you do have options in the current situation to deal with your contracts. Please do take the time to check now.

 

Proelium Law is here to help you. We are continuing to work during this difficult period. Call or email us if you have an enquiry, we will call you back at a time convenient for you

 

Adrian Powell is the Managing Partner of Proelium Law LLP.

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