Coronavirus – Legal implications for contractual performance and Force Majeure
10th March, 2020
The Coronavirus outbreak has resulted in travel restrictions and complete lockdowns in several cities, regions and countries. Just a few weeks after the outbreak commenced, the economic effects of labour shortages, business closures and supply chain disruption are starting to become clear.
Businesses are turning their attention to how to best manage the outbreak. Alongside internal management, and the human resource implications, businesses are now taking steps to assess the impact on their supply chains and contracts. It is inevitable that the Coronavirus outbreak will have serious legal and commercial implications if it means that companies are unable to fulfil contracts either within agreed timescales, or at all.
From a legal perspective, attention has focused on whether the effects of the outbreak will allow contracting parties to invoke “force majeure” provisions to excuse delay or non-performance. A properly drafted force majeure clause should enable a business that is prevented or delayed in performing a contract to avoid liability for what would otherwise be a breach of contract. In some situations, it might enable the whole contract to be terminated.
However, depending on the wording of the clause, a party relying on a force majeure clause may have to demonstrate that:
- a “force majeure event” has occurred;
- this led to them being unable to perform the contract;
- it has taken all reasonable steps to avoid or mitigate the event or its consequences.
Crucially the phrase “force majeure” has no specific meaning in English law. As a result, there is scope for complex legal argument, including as to whether the effects of the Coronavirus outbreak can amount to force majeure in the first place. If the Coronavirus crisis deepens, force majeure provisions could become relevant in the following ways:
- suppliers to your business might seek to invoke force majeure;
- you may need to invoke force majeure under your own contracts.
Each of these will need careful analysis of the relevant contract against the applicable factual background. Unfortunately, the position is unlikely to be clear cut.
We are currently helping a number of our clients to understand their legal position in the event that Coronavirus seriously disrupts their business. A review of key contracts is highly advisable in order that risks can be understood and, where possible, contingencies put in place.
How can Ward Hadaway help?
To find out more about our commercial support packages, please get in touch.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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