It is the number one news topic in recent weeks and is likely to be so for quite some time. However, for businesses, the coronavirus outbreak has left them facing some unexpected, yet significant, issues. High among them is the effect of the virus on contracts and business will want to know whether their contract can be terminated, or suspended at short notice due to the outbreak or its repercussions.
Coronavirus, along with war, natural disasters and other exceptional events, is likely to fall in a category of circumstances known as force majeure. Force majeure is literally translated as “superior force” but is also commonly referred to as “an act of God”.
Unlike many European countries, the English legal system does not have a set definition of force majeure which can be used to terminate contractual obligations. Therefore, on a basic level, parties can be held liable for breaches of contract, even if they were unable to comply with them due difficulties caused by the coronavirus, events which could be completely outside their control.
It is therefore vital that business first check the governing law clause for contracts spanning several jurisdictions, as this could have a significant impact on the options available to them.
Assuming the contract is governed by English law, the parties may still be able to rely on force majeure if there is a specific clause written into the contract. However, the mere presence of a force majeure clause is not enough to assume it can be relied upon. As with many aspects of English contract law, the wording is vital.
Pandemics or Epidemics?
Some contracts may for example, expressly state a declared pandemic or epidemic as a force majeure event. Such a clause could probably be relied on, as the outbreak has been officially classed as a pandemic by the World Health Organisation.
But the position may be less clear if the wording is more ambiguous. For example, the clause may refer to government interference, but not a pandemic or epidemic. In these scenarios, you could find a contract with a party in a country in virtual lockdown due to coronavirus, is capable of being terminated by force majeure, but an identical contract with a party in another country with less restrictive measures having to be fulfilled.
Courts to decide
If there is doubt, it is for the person seeking to rely on the clause to prove three elements, namely that the event is beyond the persons control, that the event has stopped or delayed you from performing your contractual obligations, and that there is nothing you could have done to prevent or mitigate coronavirus and its impact. For many people, the third test will be hardest to overcome. It will also be interesting to see the approach taken by the Courts when the first contractual disputes resulting from coronavirus come to be determined in a few months’ time.
In conclusion, the fact that there has been an outbreak of coronavirus cannot be unilaterally used as a reason for defaulting on contractual obligations.
It is now vital that businesses seek proper advice as soon as possible if they believe that their contracts may be affected. Failure to do so, and assuming you are protected, may result in a breach of contract being committed.
What to do next? Get some initial advice if you are concerned.
If you require advice on whether your agreement includes sufficient protection from the ongoing outbreak, or are a business being accused of a breach of contract over which you had no control, our team of solicitors will be happy to advise you.
We offer an initial fixed fee consultation for £95 including VAT, and are happy to discuss your matter with you via telephone as well as at our offices. To arrange to speak to one our team, please call 01189589711.