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COVID-19: Contract Termination Under The Doctrines Of The Force Majeure and Frustration

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COVID-19: will this trigger a force majeure clause?

COVID-19 was declared a pandemic by The World Health Organisation (WHO) on 11 March 2020. This was following a surge in reported cases and deaths in over 100 countries and territories. 

Not only is the coronavirus affecting hundreds of thousands of people worldwide, it is also having an increasingly detrimental impact on the global economy. In light of the Government’s guidance and restrictions, many businesses are now struggling to fulfil their existing contractual obligations. It is anticipated that both suppliers and customers will be examining their contracts to determine the extent of their obligations and liabilities during these uncertain times.  Many will no doubt also be looking to invoke a force majeure clause in order to relieve them from their contractual liabilities.  

What is a force majeure clause? 

A force majeure is a contractual clause which excuses a party from performance under a contract when an event or circumstance beyond their reasonable control prevents such performance. A force majeure clause comes in many shapes and sizes and, whilst some contracts may define which events are covered by the clause, others will not. Many businesses are therefore questioning whether their existing contracts include a force majeure clause and, if so, whether this excuses performance of their contractual obligations or allows a delay in doing so. 

The answer depends entirely on the particular wording of the relevant contractual provisions and businesses should be sure to scrutinise their contracts carefully. Force majeure provisions are express terms and will not ordinarily be implied into contracts governed by English law. 

Is COVID-19 a force majeure event? 

Some contracts will include a list of defined events which constitute a force majeure, others will not. Typical examples would include natural disasters, war, epidemics or pandemics. If the term pandemic is included within the clause, then clearly COVID-19 will be covered.  However, if the clause does not provide a list of possible events, then it will still be subject to contractual interpretation and may be covered. 

Reliance on a force majeure clause 

If it is determined that COVID-19 is covered by a force majeure clause, the impacted party is not automatically free from liability for failing to perform or delaying performance. The clause will often provide further circumstances in order for the clause to be triggered. Generally, terms such as ‘prevented’; ‘hindered’; ordelayed’ will be used to describe the required impact on affected party’s performance. Prevented means that it must be physically or legally impossible to perform, whereas hindered or delayed are far less onerous requirements. 

The effect of relying on the clause 

Ultimately, if the contract has the benefit of a force majeure clause, then there will be a number of possible consequences for the impacted party. These include: – 

  • Allowing the impacted party to delay or suspend performance;
  • Allowing the impacted party to claim an extension of time; 
  • Excusing the impacted party from performance of their obligations under the contract; or
  • Allowing the impacted party to terminate the contact. 

The above depend entirely on the wording and drafting of the relevant clause, so legal advice ought to be sought where there is any ambiguity. 

What will an impacted party need to prove in relation to COVID-19? 

  1. That the COVID-19 pandemic falls within the scope of the force majeure clause. There need not be specific reference to a ‘pandemic’ as it may be covered by a more generic sweeping statement such as ‘events beyond the parties’ reasonable control.’ It is also important to note that the event does not necessarily need to be COVID-19 itself; it is also the consequences of COVID-19 and the impact it has on the affected party to fulfil its contractual obligations that is relevant.
  2. That COVID-19 affected the performance of the contact to the extent specified in the force majeure clause. For example, if a clause stipulates that it will be triggered if a force majeure event prevents performance of the contract, it will likely require the performance to be legally or physically impossible. 
  3. That the impacted party has taken reasonable steps to mitigate the impact of the force majeure event on the performance of the contract. 
  4. That COVID-19 was the cause of the relevant party’s failure to perform the contract. The impacted party should ensure that the failure is not due to any other reasons which fall outside of the force majeure clause.
  5. That they have complied with any notice provisions contained within the contract; often the reliance on a force majeure clause will be conditional upon the issue of an appropriate notice in accordance with the contract. 

What if there is no force majeure clause?

If the contract does not contain a force majeure clause then the impacted party may have to rely on the doctrine of frustration; so as to avoid liability for what would otherwise be a breach of contract. The effect of the doctrine is to terminate the contract immediately upon the occurrence of the frustrating event, releasing the parties from their obligations. The event must be something which renders it physically or commercially impossible to fulfil the contract. 

Invoking a force majeure clause should not be taken lightly and legal advice will often be required.  Wrongful force majeure claims can have serious consequences and may result in breach of contract or repudiation of the contract and a party may become liable for damages. 

Should you require any further advice in relation to breach of contract or methods of terminating a contract then please contact Kelsey Whitehouse in our commercial litigation team on 0161 820 8888 or send us an email at [email protected].

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