Coronavirus: cancellation or breach of contract

As the UK economy continues to suffer as a result of the coronavirus outbreak, people want to know what their contractual rights and liabilities are for goods and services which are delayed or cannot be provided as a result of the coronavirus.

If suppliers are no longer able to perform their existing contractual obligations, they should review the terms of their existing contracts to see if there is a force majeure clause which excuses them from liability for non-performance. Whether or not coronavirus constitutes a force majeure event will depend on how force majeure is defined in the contract. The definition will often include an “epidemic” or “pandemic” as an event of force majeure and so it would then need to be determined whether coronavirus constituted an epidemic or pandemic.

If there is no force majeure clause either party may choose to argue that the contract was frustrated or terminated because the supplier could no longer perform their obligations under the contract. In this instance, there may be a limited remedy available for the party seeking to frustrate the contract to recover some or all of the sums paid before the contract was frustrated. A contract will only have been frustrated if the contract had become impossible or illegal to perform because of the coronavirus. The extent to which monies can be recovered under the contract will depend on the extent to which the supplier has already incurred expenses in performing the contract.

Coronavirus is likely to have an impact on those who have purchased tickets for music concerts or sporting events that are subsequently cancelled and those who have paid tuition fees for schools or universities which are obliged to close as a result of Coronavirus. If there is a force majeure clause in the contract, the supplier’s obligation may be limited to using reasonable endeavours to find an alternative means of supplying the service or goods. However, although a force majeure clause may not obligate a supplier to provide a refund, a consumer may be protected by other self-regulatory bodies. For example, if a ticket supplier is a member of the Society of Ticket Agents and Retailers, a consumer may be entitled to a full refund provided the event is cancelled and the event organiser enables and authorises refunds, which we expect most do. However, the consumer refund would be limited to the face value price of the ticket, excluding any related travel and accommodation costs.

If there is a force majeure clause in a school parent contract, then the school may be obliged to look at alternative ways to provide the education, for example, through online teaching. Provided the school offers a reasonable alternative, parents may not be entitled to any refund of fees during the period of closure. If a school or university closed because of coronavirus and there was no force majeure clause in the contract, there may be an argument that non-performance of the contract means that the contract has been frustrated. However, in those circumstances, the parent or student may not be able to recover any fees paid, because the school would have already incurred most of the costs in employing the staff.

A consumer should also review the other standard terms and conditions of the contract in order to establish any other contractual rights they may have against the supplier. It is also important to consider whether there is any regulatory body which provides additional protection for consumers or whether any insurance cover applies to the loss suffered.

As the disruption caused by the coronavirus outbreak is unlikely to decline for some months, now would be a good time to review your existing contractual arrangements, your standard terms and any new contracts which might be affected.

If you have any questions about any of the contractual arrangements that you or your business have entered into, please contact our corporate / commercial team, who can provide advice on existing contracts