Coronavirus and force majeure: delays in performing contractual obligations

As I am sure you are more than aware by now, the coronavirus outbreak has this week been officially labelled a pandemic by the World Health Organization (WHO). Amongst more serious and worrying consequences, it’s highly likely that most businesses are or will be affected in some way. For example, a reduced workforce may impact a business’ ability to deliver on time under their contracts with their customers. So, can you simply rely on “force majeure” for such delays? The answer, of course (and nearly always), is “it depends on what’s in the contract”…

What is “Force Majeure”?

Many contracts have a force majeure clause in order to set out the consequences of a failure by one party to perform its obligations due to an event beyond its control. The contract should define what constitutes a force majeure event and it may even specifically refer to a “pandemic”. Typically, it will also include “Acts of God” which does not have a definition in English law, but I suspect that there is a very good argument that the outbreak is sufficient to be considered as such.

So, what should you do if you think your ability to deliver may be affected?

Check your contracts, including for the following:

• Is there a force majeure clause or another clause letting you off the hook for “reasons outside the control of the parties”?
• How is a force majeure event defined in the contract (if at all)?
• Are there any exclusions which mean that the definition does not apply?
• Is there a procedure for notifying the other party to ensure you are protected under the clause?
• Does the clause state what happens to any charges payable (during such an event charges are often waived or reduced by an agreed amount)?
• Does the clause place other obligations on you before you can rely on it, such as taking all necessary steps to mitigate the effects?

What if there’s no force majeure clause?

It could be that the contract is ‘frustrated’ if there’s no contractual provision for such an event to be considered a force majeure and this has the effect of terminating the contract immediately and releasing both parties’ from their respective obligations.

A word of caution

Claiming that your business is suffering a force majeure event if, at least in the contract, it is not clear that this is the case, could of course result in claims against your business for breach. So, if in doubt, we recommend you seek advice on the best course of action. However, we hope that your supply chain remains unaffected and, more importantly, that your workforce remains healthy and well.