The outbreak of an unknown virus in China in the latter part of 2019 has brought force majeure, an often-forgotten legal term, into sharp focus here in the UK.
1. What is force majeure?
In short, it’s a principle that can apply when an extraordinary event or circumstance beyond the contracting parties’ control prevents one or all of them from fulfilling their obligations, If it is engaged, it excuses a party from performing an obligation that’s caught by the force majeure event. Ask a non-lawyer what it means and they’ll probably refer to “acts of God”.
Unlike most contractual concepts, force majeure has no set legal definition and it will mean what a contract says it does by describing the events it applies to. For example, war, industrial action, terrorist attack.
2. Does my contract have a force majeure clause?
Possibly. Many do, but many won’t and when they are included, they tend to come towards the end and are often seen as ‘boilerplate’ which have not been heavily negotiated. If that’s the case, a clause’s scope will almost certainly favour whoever prepared the first draft of the agreement or has used their standard terms.
Force majeure clauses only cover what they describe and are likely to be interpreted strictly. As an example, an act of God is highly unlikely to encompass a man-made virus. The party looking to rely on the clause will have to prove that the wording covers the event in question and that its non-performance was due to the event.
3. Can we rely on COVID-19 being a force majeure event, in order to avoid our contractual obligations?
As with most lawyers’ answers to general questions, it really does depend…
Each contract will need to be assessed on a case by case basis against its terms and facts in the way in which it has an impact on a party’s ability to perform its obligations.
4. When does force majeure apply, and does it prevent us from performing the contract (or is it sufficient for it just to have made it difficult?)
Force majeure is one of the few remedies that enable a party to escape or, at least pause, their contractual obligations.
It is unlikely to apply if your obligations were simply made (more) difficult because of the event like coronavirus. An event will only get you out of a contract completely if has made, or deemed, your obligation illegal or impossible.
It is important to apply the clause to the precise facts of your situation. For example, a force majeure clause which only covers “government regulations” wouldn’t cover a sporting body like the Premier League cancelling football matches if it took its decision before the Government’s introduced regulations that banned mass gatherings and sporting events.
5. Are force majeure clauses regulated?
Yes.
In commercial agreements they’re covered by the Unfair Contract Terms Act 1977 (“UCTA”) which effectively stops a party using a force majeure clause to exclude or restrict liability for its own breach, or claiming that it can render contractual performance that is substantially different from that which was reasonably expected or (in respect of the whole or any part of its contractual obligation) to render no performance at all, unless the clause satisfies UCTA’s reasonableness test.
To put that in context, a supplier may well have difficulties if it tried to include events that were within its own control in its own force majeure wording. Understandably, the position under B2C contracts is even more restrictive, to avoid opening the floodgates to a multitude of claims.
Our commercial teams are available and able to advise on all aspects of COVID-19’s impact on contracts.
