Coronavirus and business and trade disruption: a force majeure event?
In addition to the terrible human cost of novel coronavirus, there is the economic impact on businesses and global trade. This disruption to businesses brings the question: does novel coronavirus translate into a force majeure event and remove or change any contractual obligations in place?
Force majeure, in general terms, is an event that is out of the control of contracting parties which releases the parties from their contractual obligations when the event occurs (or changes those obligations).
Unlike under many civil law (particularly European) jurisdictions, force majeure is not a recognised concept under English law. Therefore only an express force majeure clause in a contract will be enforced by the English courts in accordance with the general principle that the courts will allow parties the freedom to contract with each other as they wish.
Interpretation therefore hinges on the specific wording and intentions of the parties at the time of contract. For example:
- Is there a list of possible force majeure events within the clause? If yes, will it catch novel coronavirus and the extent of the outbreak in a given region (e.g. is “epidemic” a specified event) and where a recognised public/world health and/or governmental body has declared such an event? Is there a catch-all provision in the clause? Even if there is, bear in mind that such a provision is not fail-proof, particularly if there is nothing on the list that you can compare to an outbreak of disease.
- What did the parties know at the time of contract? With frequent references to “unforeseeable events” in force majeure clauses, it will be important to consider whether there had there been any reports of instances of outbreak in the relevant surrounding areas. If the parties knew of novel coronavirus and did not make express reference to it as a force majeure event, an English court may not allow a party to subsequently rely on it as a force majeure event.
The party relying on the clause will usually need to demonstrate that performance is legally or physically impossible, as opposed to simply more difficult or expensive.
Where there may be entitlement to rely on the clause, the following should be considered:
- The scope of the entitlement to rely on the clause, for example to suspend performance or non-liability for non-performance.
- Any time limits for invoking the clause.
- Any obligation to mitigate, whether express or implied, which means that the party relying on the clause must show that it has taken all possible steps to avoid or mitigate the impact of the event.
- Any right to terminate the contract as a result of the force majeure clause being engaged, for example if the event continues for a certain duration.