COVID-19 and force majeure
As the impact of COVID-19 rose, attention turned to force majeure clauses.
Can these clauses be relied upon to excuse parties from performing their contractual obligations?
What are force majeure clauses?
Force majeure clauses are contractual clauses that alter a party’s obligations under a contract upon the occurrence of some event that is outside the reasonable control of that party.
Force majeure provisions will not ordinarily be implied into contracts. They must be expressly stated.
A party’s ability to claim relief for a force majeure event depends upon the precise wording of the clause.
The relief might take the following forms:-
- excusing the affected party from performing the contract in whole or in part;
- excusing that party from delay in performance, or entitling them to suspend or claim an extension of time for performance; or
- giving that party a right to terminate.
Is COVID-19 a force majeure event?
The answer to this question will ultimately depend on wording of the force majeure clause.
Force majeure clauses typically fall into the following broad categories:-
Listing specific events
Where the term ‘epidemic’ or ‘pandemic’ has been used, this will clearly cover COVID-19. If an ‘act of government’ has been used, the position is less clear and might include consideration of the government’s position: has the government made recommendations or has it issued a strict and binding directive?
Setting out broad criteria
Some clauses may be worded to suggest ‘events or circumstances beyond the parties’ control.’ Determining whether a clause of this kind would cover COVID-19 is a question of interpretation and is fact-specific. However, in the current unprecedented times, the Court is likely to be more generous in its interpretation where parties have faced genuine difficulties in performing under the contract.
A combination of both
There are some clauses that may start by listing specific types of events or circumstances e.g. fire or flood, but which follow with ‘or any other causes beyond our control.’ Whilst this type of clause will be open to interpretation (and argument), the general wording is likely to be interpreted broadly, which could include COVID-19.
Just force majeure
In some contracts, just the phrase ‘force majeure’ is used. As the term force majeure has no technical legal meaning or established scope in English law, its meaning will be a matter of contractual interpretation and might even be determined as void for uncertainty if used as a standalone reference.
Is it enough to say that performance under the contract is more difficult or expensive during the COVID-19 outbreak?
It is quite common for force majeure clauses to specify the impact that the event or circumstances must have in order to trigger the force majeure clause.
By way of example, the following specific terms will often appear in force majeure clauses:-
‘Prevented’: this means that it must be physically or legally impossible to perform. This is quite a high threshold to meet. Therefore, it will not be enough that performance is more difficult, more expensive or less profitable.
‘Hindered’: this is a lesser standard than ‘prevented’ and may in appropriate circumstances be triggered by performance being made substantially more difficult. However, use of this term is unlikely to assist a party where performance of the contract is simply less profitable due to higher costs.
‘Delayed’: proving that performance has been delayed is typically easier than proving that performance has been prevented or hindered. One must simply demonstrate that complying as quickly as required is substantially more difficult.
What must be shown in order to rely on a force majeure clause?
In summary, one must be able to demonstrate the following:-
- the force majeure event was the cause of the delay or inability to perform the contract;
- non-performance was because of circumstances beyond your control; and
- the event could not have been avoided or mitigated by taking any reasonable steps.
What is the procedure to be followed?
It is the party seeking to rely on the force majeure clause who must satisfy a court as to the effect of the clause.
It is important to read the force majeure clause in the contract carefully to check what specific procedural requirements may need to be complied with in order to trigger the force majeure protection.
What is the effect of relying on the force majeure clause?
Relying on a force majeure clause excuses one or more of the parties from its obligations and or liabilities under the contract, without any damages being payable.
Other effects of successfully relying on a force majeure clause include:
- Extension of time;
- Suspension of time; or
- Termination in the event of continued delay or non-performance.
Parties should consider the following steps in order to protect their positions:-
- Study carefully the precise wording of the force majeure clause and do not assume that all disruptive events or circumstances will be covered.
- Serve any notices as required under the contract as soon as possible and in accordance with the notice provisions.
- Keep a written record of why performance was impossible, hindered or delayed, and the steps you took to seek alternatives and mitigate your loss.
- Explore alternative means for performing obligations, reducing delay, or minimising any loss to the other party.
- Have discussions with the other party about agreeing a variation to a contract. Early dialogue and communication can make a very real difference.
For any queries in relation to this blog, please contact the litigation department on 01242 586 841 or email Andrew Turner.
The information contained on this page has been prepared for the purpose of this blog/article only. The content should not be regarded at any time as a substitute for taking legal advice.