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Force Majeure: centre-stage in the time of Covid-19 by Charlotte Davies

22nd April 2020

Force Majeure: centre-stage in the time of Covid-19 by Charlotte Davies

Civil and commercial barrister Charlotte Davies, 2007 call, looks at the concept of force majeure and gives a brief overview of the circumstances that give rise to its use, with particular reference to the current events surrounding Covid-19.

What is Force Majeure?

Despite being a well recognised principle in English law, there is - in fact - no settled definition of the concept of force majeure in our jurisdiction. In general, a force majeure event will be any event out of the party’s control which prevents, hinders, or delays the performance of a contractual obligation. Successful reliance on an effective force majeure clause contained within the contract will protect the party from breach of contract proceedings.

Given there is no settled doctrine, the definition of a force majeure event will depend entirely on the terms of the contract entered into between the parties. As such, a detailed and critical analysis of the individual terms will need to be undertaken to determine whether the particular event relied upon is likely to be found to be a force majeure event. A clause that merely references force majeure will be unenforceable; there needs to be further definition.

Why is Force Majeure under the spotlight?

Due to current events surrounding Covid-19, businesses have been left with no choice but to, for example, postpone or even cancel events entirely, often leaving customers out of pocket. Suppliers have been unable to operate, either due to being forcibly closed by the government or being short-staffed as a result of self-isolation, leaving contractors no choice but to delay completing construction and other projects. Both consumer to business, and business to business contracts have been affected. Businesses want to know whether they are liable for breach of contract and therefore potentially liable for any losses incurred by the other party.

Is my business protected by a Force Majeure clause?

The first step is to find out if the contract or Terms & Conditions contained a force majeure clause. If it does not, one cannot be implied.

At its most simple, force majeure events are often defined as events which are beyond the party’s reasonable control. Some examples of force majeure events often included are acts of God, war, strikes, civil unrest, terrorism, and extreme weather conditions. The list does not have to be exhaustive but a party is far more likely to be protected if the event relied upon is listed. If the list reads as an exhaustive list, then a party is less likely to be protected if the event relied upon is not included.

 In terms of Covid-19, some clauses include “epidemic” and/or “pandemic” as a force majeure event. Given that the World Health Organisation has declared the outbreak of Covid-19 to be a pandemic, it is likely that the current outbreak would constitute a force majeure event under these terms.

It will also need to be established that the force majeure event is the causative factor for the performance of the obligation being hindered, delayed or prevented. Again, this may depend on the drafting of the clause. For example, where a clause requires the event to have “prevented” performance, it will be necessary to show that it had become legally or physically impossible, not just difficult. “Delay” or “hinder” is likely to be easier to demonstrate.

The duty to mitigate must not be forgotten. What constitutes reasonable mitigation will depend on the circumstances surrounding the contract.

The clause may impose notification requirements requiring the party to notify the other party of the event and its reliance upon the clause within a certain time period, or to provide details. Careful attention will need to be taken to ensure any obligations are complied with.

The effect of successful reliance on a Force Majeure clause

Depending on the wording of the clause, one of the following may apply:

obligations are temporarily suspended during the period the force majeure event persists;
liability arising from the non-performance and/or the delay in performance of the relying party is extinguished;
one or both of the parties may become entitled to exercise the right to terminate the contractual relationship;
the contract becomes automatically discharged and parties have no further obligations under the contract.

...but take care!

Wrongly relying on a force majeure clause could lead to proceedings being issued for breach of contract.

Also, bear in mind the protections afforded to consumers under the Consumer Rights Act 2015 – refusing a refund in circumstances whereby it could be seen as a windfall to the business may be deemed unfair. It would therefore be considered reasonable for a business cancelling an event to offer at least a partial, if not a full refund, depending on the circumstances.

An alternative route may be the principle of frustration; something that we may also hear more about given the impact of Covid-19. However, the bar is notoriously high so careful consideration will need to be taken before arguing frustration and as such it is important to seek legal advice.

If you wish to discuss this, or any other case with Charlotte, please contact her clerk Jamie Kyte on 01752 221551 or jamie@kbgchambers.co.uk

 

Charlotte Davies

cdavies@kbgchambers.co.uk

April 2020

 

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Force Majeure: centre-stage in the time of Covid-19 by Charlotte Davies