News

Contracts, Force Majeure and Covid-19

As we make our way through these uncertain times, this may be the first time you have heard the phrase ‘force majeure’ used in terms of business (and consumer) contracts. So, what is it? And how does it help/hinder me?

What is it?

In layman’s terms, force majeure is something which can be used by a contracting party to essentially ‘get out of’ their contractual obligations, without penalty. These are often acts of God, covering earthquakes, natural disasters, as well as civil war, riot and the like. Sounds ominous/useful, depending which party you are? But…

… Beware…

There is no English law legal definition of force majeure. Therefore there is no ‘textbook’ definition that you can refer to. Force majeure is (or maybe ‘should be’) defined in your contract. Only those items listed in the contractual definition can be used effectively to exit the contract Scott-free. Unless there has been some additional ‘catch-all’ drafting, although this could be open to interpretation. There may also be a procedure as to what will happen when a force majeure occurs, eg: when it takes effect (if a party can’t carry out its contractual obligations for 30 days, say), what that party has to do, what happens to the contract, any goods or services supplied to date, etc.

If you don’t have a written contract at all, then… well, you are at the mercy of the other party to your (unwritten) contract but may be able to successfully argue that your ability to complete your contractual obligations has been legally ‘frustrated’ (ie: you are unable to complete them for reasons outside your control).

Does it apply to the Covid-19 pandemic?

You will need to look in detail at the wording given in the contract – does it cover ‘global pandemic’? If it does, then great. If not, does it cover governmental advice to desist from a certain activity? Or mean that personnel cannot come into work to carry out the service or activity? Everything will depend on the wording. If you do have such a clause and the value of the contract is high, it would be prudent to quote each and every type of force majeure that you are relying on – don’t just stop at the first that you find applies.

For those business who trade directly with China, or have a Chinese element in their supply chain, you may be able to apply for a certificate of force majeure from the Chinese government to assist. You should seek advice from someone specialising in Chinese law for further advice.

If you DON’T have a force majeure clause then you MAY be able to depend on the fact that there is a global pandemic, BUT it depends on your product/service/circumstances. Alternatively, you may potentially be able to rely on other contractual rights, such as frustration. Again, your ability to do so will be specific to your situation.

Advice/review?

Your current contracts may benefit from review and revision, or you may not have any contract at all. Alternatively you may be wondering how to exit a contract which you can no longer perform. If in doubt, please get in touch for advice. Contact me on karen.blakesley@cognitivelaw.co.uk .

Karen Blakesley, Cognitive Law