As a result of the global pandemic and the outbreak of Covid-19 throughout the world, our lives as we know them have changed drastically. Therefore, it is no surprise that businesses across the globe are struggling with issues in supply chains, changing requirements for goods and restricted consumer spending. As such, the inclusion of a force majeure clause in contracts will be a very important contractual term moving through this period and I encourage all business owners to review these terms in their contracts immediately.
The purpose of a force majeure clause in a contract is to look forward and anticipate events which may occur that make performance of contractual obligations under the contract substantially different from those intended under it. The clause will then govern the respective, and in most cases altered, obligations of the parties in the event that one of the anticipated events occurs. In short they have the effect of making the response to the situation a matter of contractual construction and alleviate the need for the application of stricter legal principles.
It is commonplace for contracts to include elaborate force majeure clauses which make provision for a vast array of scenarios; which may include pandemics and will likely include effects of government advice. On the other hand, many contracts will still contain insufficient protection, such that any force majeure clause may not apply in this situation. This might be because they are short term contracts which have only made provision to cover events which are capable of resolution in the short-term which do not extend to cover catastrophic events such as the coronavirus outbreak. If a force majeure clause is included that does not make provision for this event then one can look to the doctrine of frustration to ‘frustrate’ the contract.
In short, businesses should review contractual force majeure clauses as a matter of urgency to identify what course the obligations under the contract are to take. It is common for force majeure clause to include terms such as ‘Acts of God’ as an umbrella term to include a vast array of events. Whilst the term has usually been related to climatic events (such as the effects of the eruption of Eyjafjallajokull, Iceland in 2010) there is academic argument that this phrase can extend to include pandemics as they are ultimately natural disasters. I think this can only be so long as the term is not limited by the drafting of the clause; after all, the usual principles in relation to contractual interpretation will apply.
In conclusion, the question as to ‘what happens now’ in response to covid-19 will start and finish with the contractual terms, however this will not be so in all cases. It is likely that there will be many disputes in the future over the operation of force majeure clauses so businesses should review them now to ascertain their contractual obligations and associated risk. Gardner Leader LLP are able to advise on the operation and coverage of force majeure clauses as well as assisting with any disputes born out of the same.
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