In the midst of the global Coronavirus pandemic (COVID-19)businesses should not ignore the increasing number of legal and practical implications that the ongoing pandemic may have on their contracts and agreements. Particularly, the inclusion and effect of Force Majeure clauses within commercial contracts.
A Force Majeure clause is a clause which allows the termination or, pardon from performance for a specific period of time, of the contract in the event of an unforeseeable event occurring which renders the contract in question unworkable. A Force Majeure event will result in one or all of the parties being unable to perform their obligations of the contract as a result of events entirely beyond their power and foresight.
Force Majeure clauses are not implied into contracts in England and Wales and therefore the clause must be express and is entirely subject to its own terms as agreed between the parties.
Can COVID-19 constitute a Force Majeure Event?
Whether COVID-19 constitutes a Force Majeure event will depend entirely on the wording of each Force Majeure clause.
Once you have established that the contract contains a Force Majeure clause, the party seeking to rely on it will need to show that the COVID-19 pandemic, or the effects of it, give rise to a situation which falls within the definition of ‘a Force Majeure event’ in the contract.
Many definitions of Force Majeure events drafted into contracts include global pandemics and epidemics, making reliance on the clause much easier. If the definition is unclear, parties will need to show that the pandemic itself, or the effects of the pandemic, have rendered the performance of the contract impossible. Mere financial discomfort will not suffice.
The key in establishing this therefore is in the interpretation, of which, may be satisfied by seeing COVID-19 as an “act of God”. An act of God is usually confined to natural disasters such as floods or earthquakes, however it has been interpreted to include “a providential occurrence or extraordinary manifestation of the forces of nature” and it could be argued that this pandemic falls within this definition.
Alternatively, government measures in response to COVID-19 may lead to a change of laws or policies which render performance of the contract impossible. For example, travel bans or quarantine zones or periods.
In order to rely on a Force Majeure event, it must be the sole cause for the inability to perform the contract. If the pandemic (which includes government intervention arising from the pandemic) is one of a number of reasons that causes the inability to perform the contract then it cannot be relied upon.
Essentially, therefore, whether you are seeking to rely upon Force Majeure as a result of COVID-19, or whether you are suing for breach of contract where another party has alleged it as a Force Majeure event, the key remains in the construction and interpretation of the clause itself.
What kind of contracts could be affected by COVID-19?
Most commercial contracts provide for parties to be pardoned from their contractual obligations in the event of serious unforeseen circumstances via Force Majeure clauses. Subsequently, and with a specific focus on Contracts for the provision of goods or services, there is a possibility suppliers could withhold the provision of goods and services to its customers, or customers could withhold payment of goods and services to the supplier if COVID-19 is having an impact on either of their ability to make such payments or provide such services/goods.
Other contract and agreements that me be affected include: Agency contracts; Facility agreements; and Import and export agreements.
If your business is subject to one of these contracts or agreements then you are potentially affected by Covid-19, particularly by force majeure clauses.
Although not impossible, it is uncommon that Force Majeure clauses are drafted into commercial leases. Such clauses could entitle a tenant suspend rental payments or allow a Landlord to restrict the tenants use of the property under the lease.
Notwithstanding the absence of Force Majeure provisions, parties could suspend or terminate their performance of their contracts in light of the Covid-19 pandemic, under the law of frustration. A contract may be discharged on the ground of frustration when something occurs after the formation of the contract, which renders it physically or commercially impossible to fulfil the contract.
If you are concerned about either your ability to perform your contract in light of COVID-19 or have received notice that another contractual party is seeking to rely on a Force Majeure clause and you would like more clarity as to your position, Axiom Stone are here to conduct contract reviews and advise you of your position. Please get in touch now by contacting us at email@example.com.
Whilst employment contracts do not often contain Force Majeure clauses there is no doubt the COVID-19 pandemic will have a significant impact on the performance on employment contracts.
From an employer’s perspective – The COVID-19 pandemic has caused employers to consider either ‘laying–off’ staff , reducing their hours or pay, or even implementing redundancies. Redundancies and laying off staff should not be entered in to lightly, and employers should consider all options and ensure they are following the correct procedures. The pandemic does not waiver an employer’s liability should any claim arise from failing to follow government guidelines.
From an employee’s perspective – Employees may find themselves in a redundancy situation, or worse still being laid off or their hours reduced and may be unsure whether their employer has followed correct procedures in doing so. The government has announced it will pay employees wages through the Coronavirus Job retention Scheme if your business is forced to temporarily close because of coronavirus.
If you are an employee or employer and are concerned about the effect of COVID-19 on your workforce or your individual employment contract Axiom Stone can advise you of the options available to you, including the financial assistance options.
Whilst the construction of existing wills are unlikely to be effected by COVID-19 there is no doubt that individuals are opting to enter in to a will in order to protect their assets and ensure their affairs are dealt with in the situation the pandemic threatens their health.
For further advice on Force Majuere clauses and commercial contracts, please contact Claudine Lawrence, Partner and head of our Corporate and Commercial Department on 0203 827 6117 or firstname.lastname@example.org.
For further advice on employment, please contact Rachel Lester, Solicitor in our Employment Department on 0203 827 6119 or email@example.com.
For further advice on wills, please contact Vassos Vassou, Partner and head of our Private Client Department on 0203 827 6114 or firstname.lastname@example.org.