Force majeure and COVID-19

Christopher Perrin | chris.perrin@uk.ey.com | 020 7951 2768 | https://www.linkedin.com/in/cperrin/

If you are one of the millions of people currently trying to work from home, there is a good chance you have been experiencing some technical difficulties. Many instant messaging and broadband services across the UK seem to be struggling to cope with the increased demand for their services, as people who would normally be in an office try to communicate with their peers from their home. It is still early days of course and we are in unprecedented times. The hope is that over the coming days and weeks things will improve but, in the interim, customers and their service providers whose contracts are detrimentally affected by the COVID-19 pandemic will need to look to the precise wording of their contracts to see what rights, relief and remedies are available to them.

Of course, this problem is not confined to communications services. Indeed, many businesses across the UK (and beyond), of all shapes and sizes, have all sorts of contracts in place which have been severely affected by the current situation. With this in mind, the purpose of this blog is to focus on whether an affected party may be able to seek relief by relying on force majeure.

This blog is not intended to provide an exhaustive list of issues. It focuses on English law, though the issues highlighted in this blog are just as relevant to other jurisdictions. It should not be relied upon as legal advice.

Force majeure

A ‘force majeure’ clause typically excuses one or both parties to a contract from the performance of that contract in some way following the occurrence of certain events which are outside a party’s control; the net effect being that the affected party will not be liable for its failure to perform those obligations it cannot perform as a result of the force majeure event.

The term ‘force majeure’ is derived from French law and translates from French as “superior force”, but has no recognised meaning in English law and is therefore not implied into a contract; if the parties wish to include force majeure, they must add a force majeure clause to their contract and should think carefully how they define it. Some other legal jurisdictions do have non-contractual/implied rights of force majeure. So, before assessing a force majeure clause, it will always be very important to first identify which laws apply.

Step 1 – Check whether there is a force majeure clause in the contract

If you are a party to a contract and are unable to perform some or all of your obligations due to COVID-19 (or the impact of it), the first thing you should do is check whether you have a force majeure clause in your contract. Assuming you do, and assuming English law applies, you should assess whether a pandemic/epidemic is covered by the definition of force majeure. If pandemics/epidemics are expressly included within the definition, this is preferable.  However, even if pandemics/epidemics are not expressly included, other wording, or a catch all provision (e.g. act of god, action by government or events beyond a party’s reasonable control), may be enough but will depend on the drafting, circumstances and intention of the parties.

Step 2 – Assessing how a force majeure clause operates

Next, you will need to assess how the force majeure clause operates. This will hinge on the exact wording used, so consulting a commercial lawyer is advisable. For example, certain drafting may require that performance is legally or physically impossible, not just difficult or unprofitable.  Whereas other words may have wider scope and be satisfied if performance is substantially more onerous.

Step 3 – Proving that a force majeure event falls within the clause

Importantly, if you are seeking to rely on a force majeure clause, you will have to prove that the event falls within the clause and that non-performance was due to COVID-19 (or the relevant impact of it).

The relief you may claim

If successful, the relief you may claim will depend on how the clause is drafted but may include some or all of the following:

  • Suspension of obligations for the duration of the force majeure event – so the requirement for the supply of goods (e.g. delivery of orders) or performance of services could be suspended.
  • Extensions of deadlines and timeframes whilst the force majeure event continues (e.g. for the completion of a construction project or for the delivery of goods or supply of services). If the contract allows for extension, it would usually state how the extension applies.
  • Liability for non-performance or delay could be limited or excluded whilst the force majeure event continues.
  • Ultimately, a right to terminate the contract if the force majeure event continues for a specified period of time.

Finally, you should carefully assess whether your force majeure clause contains any other important provisions, such as a duty to take steps to mitigate the force majeure event, or an obligation to comply with specific notice obligations. A failure to strictly adhere to any such provisions could mean that you are unable to rely on your rights under the force majeure clause

Looking ahead

It will be more important than ever for businesses to be proactive and creative, until working life gets back to normal. This includes finding new ways of working if their current services arrangements are not working as the parties originally intended.

If you have any questions in relation to this blog, please do get in touch.