The outbreak of Coronavirus and subsequent spread across the world has become the hottest news subject of the year so far. From the initial outbreak in the Hubei Province in China, it has now reached England’s Home Counties.
From the immediate health risk to humans and well-publicised disruption to travel plans, COVID-19’s potential for global chaos is starting to become fully apparent.
In sport, football and rugby matches have been postponed, the Australian Grand Prix is in doubt and the opening race of the MotoGP season has been cancelled. Also, the release date of the new James Bond film has been delayed and the world’s most-visited museum, The Louvre in Paris, has closed.
On Wednesday, Chancellor Rishi Sunak’s budget directed £12 billion specifically towards mitigating the effect that COVID-19 could have across the country. His plan includes measures such as the ability for banks to offer up to £1.2 million in loans to small and medium-sized businesses under a “temporary coronavirus business interruption loan scheme”. The Bank of England announced an emergency cut in the interest rate to 0.25% – a reduction back to the lowest level in history.
Whilst we have heard Health Secretary, Matt Hancock’s “battle plan” for the UK to combat the spread of COVID-19; what are the wider implications for businesses should the UK reach crisis point?
The Civil Contingencies Act would allow the Government to close schools, shut down public transport and prevent large gatherings. If this happens, and workers are placed into isolation, will you or your business be able to fulfil its contractual obligations?
A force majeure is an event outside a party’s control which, when it occurs, renders a party unable to perform all (or part) of its obligations under a contract. A force majeure clause is governed by the Unfair Contract Terms Act 1977 and is often drafted into a contract because of the limited remedies available if a contract becomes impossible to perform. A force majeure clause is not implied into a contract and therefore must be an express term to be relied upon.
The term has a clear meaning in French law; however, the definition does not translate easily into English law. A force majeure clause therefore needs to define the circumstances which would be considered to be beyond the party’s control, without getting into a lengthy list! If the clause refers to disease, epidemic, or even “an irresistible act of nature”, this could potentially be utilised if the contract cannot be performed due to COVID-19.
Such a clause would usually detail the effect of it being triggered, which could involve:
- temporarily suspending obligations for a contract to be performed, with reactivation when the force majeure ends;
- removal of liability for non-performance whilst the force majeure continues;
- obliging the parties to take mitigating steps as far as possible to limit the impact of the force majeure; or
- providing both parties with the right to serve notice terminating the agreement without liability (except for previous breaches).
If your contract does not contain a force majeure clause, the question then to consider is whether the impact of COVID-19 has “frustrated” the contract and therefore can be discharged. To date, there are very few cases where a party has successfully claimed that a contract has been frustrated.
Now is the time therefore to review your contracts and ascertain if they contain a force majeure clause and if so, exactly what it covers. Also, it is important to consider if you have sufficient protection when entering into new contracts in the months to come given the current impact of COVID-19, which we have most probably not seen the full extent of yet!
If you have any concerns regarding fulfilling your contractual obligations or whether you have a force majeure clause which would apply, please get in touch with our commercial teams.