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DATE: Thursday 7 May 2020, 10:00am - 11:00am- delivered via Zoom Video Conference
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As the impact of COVID-19 is rising daily, attention is turning 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:-
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:-
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:
Practical Considerations
Parties should consider the following steps in order to protect their positions:-
For any queries in relation to this blog, please contact the litigation department on 01242 586 841 or at lv@hughes-paddison.co.uk.
A chance to hear the latest on employment, property, corporate and restructuring and insolvency and to ask questions and share your opinions.
DATE: Thursday 7 May 2020, 10:00am - 11:00am- delivered via Zoom Video Conference
Cheltenham based solicitors, Hughes Paddison, have announced two promotions within their Senior Management Team. Jon Rathbone has been made an Equity Director within the firm, whilst Julie Bennett has been made a Director.
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