The Covid-19 outbreak, first reported at the end of December 2019 in China, has been declared by the World Health Organisation as a global pandemic. It has undoubtedly caused widespread disruption throughout the world to both personal and business life as we know it. Where this has resulted in businesses having difficulty or being unable to supply their goods or services, or perform other contractual obligations, this has understandably caused them to consider if the provisions in contracts commonly referred to as “force majeure clauses” can assist them.
The purpose of a force majeure clause is usually to seek to excuse or relieve one or both parties from failing to perform some element of a contract following the occurrence of a particular event. The types of events covered are usually those which would be outside a party’s reasonable control – and it may be that this would include a global pandemic, such as Covid-19.
English law and force majeure clauses
Under English law, there is no specific definition of “force majeure” or a pre-determined way in which force majeure clauses should work or be applied. It is not a concept that is implied into a contract. Accordingly, exactly what is covered by a force majeure clause is very much down to the specifics of the clause in each case and depends on what the parties agreed their rights and obligations would be at the time of making the contract.
Do note that if you are dealing with a contract that is not subject to English law then a different situation may apply. However, in an English law contract a force majeure clause will typically define the events that are to be considered a “force majeure event” and then set out the consequences of that and any associated procedures that are to be followed.
Force majeure event
As mentioned above, the intention is usually to cover events that are beyond the reasonable control of one or both parties and most clauses will likely expressly state this. Some clauses do not go into any specifics whereas others list out certain events or categories of events. Such lists are commonly non-exhaustive, but the wording should always be checked carefully as that is far from always the case.
If a party believes that it cannot perform its obligations because of a force majeure event then the clause will usually require it to notify the other party. It will also often specify that this notice should be in writing, detailing when the delay to perform the contract commenced, the reason for the delay and an estimate on how long the delay will continue. It might further indicate a deadline by when a notice must be issued.
It is essential a party follows the notification procedure detailed in a contract otherwise it might not receive the relief the clause might otherwise give it from the requirement to perform its obligations.
Effect of the force majeure clause
The party seeking to rely upon the force majeure clause carries the burden of proof. In the event of a dispute it is that party which must prove that the event falls within the clause and that its failure to perform its obligations was due to the event.
The intention of force majeure clauses are usually to provide relief to a party that has been unable to perform its obligations because of the “force majeure event” or has been delayed in doing so. This relief means that a party does not have liability for its failure or delay and it generally lasts until the event has ended and/or the affected party can reasonably carry out its obligations again.
Some contracts may state that the force majeure clause only applies, and the associated relief from performance can only be available, where the affected party has taken steps to mitigate the extent of its impact. Even if not expressly stated, if there are steps that party could have taken to mitigate the effects then it will generally be expected to have done so.
Many force majeure clauses also cater for the possibility of the termination of a contract after a force majeure event has continued for a specified amount of time. This would allow each party to make alternative arrangements with another party, if they so wished. This can be very useful if you are, for example, a customer waiting in the performance of a service. However, if the relevant force majeure event is affecting many possible suppliers, such as during the current pandemic, then it may not be much help in practice.
Practical steps to take
We would recommend that you obtain legal advice as soon as possible to see how the clauses in the contract will apply, if at all, in the particular circumstances. If they do apply then you may also need guidance to make sure that you follow any specified procedures correctly. There may well be other clauses in the contract that can also assist you and so it is important not to focus only on the force majeure clauses.
You should also collate all evidence that supports the reason for you relying on the force majeure clause and how it has caused a delay in you fulfilling your contractual duties. This should include documents from credible sources, including information in the public domain. Additionally, you should document any action you have taken to mitigate the effect of the events and to show you have acted reasonably during the process.
However, the action that often makes the most sense is simply to talk to the other party and try and find a resolution that works for you both. This is particularly the case in the current situation where both parties are likely to be affected by the event that is the Covid-19 pandemic. It is sensible to take legal advice to ensure that you do not prejudice your legal rights and to make sure that you follow any dispute resolution procedures in the contract, but often a sensible and open dialogue will reach an acceptable compromise much sooner and more cost effectively than many other actions.