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What impact is the Coronavirus pandemic having on businesses?

As the COVID-19 outbreak continues to make a global impact, companies are querying the bearing this could have on their business from employment-related issues to the commercial impact on supply chains and commercial contracts.

Force majeure clauses

Some contracts may include what is known as a “force majeure” clause.  Some force majeure clauses will be drafted quite widely and some will include a list of specific events. Either way, the purpose is to cater for circumstances which are outside of a party’s control which may render it impossible for the affected party to perform its contractual obligations at all or for a certain period.

If a force majeure event occurs, the party unable to perform their duties may be excused from their obligations or be entitled to suspend them. This will depend on the contract.

Whether the Coronavirus epidemic will constitute a force majeure event remains to be seen and will largely depend on the terminology used in the contract. For example, if a clause were to include ”epidemic and pandemic” as a specified event, a party would be more likely to be covered than if the event were specified as, “an event outside of a party’s control” or an “act of god”. How far a party is able to rely on the clause will depend on the wording. For example, if the clause were to read “hinder, delay or failure” then a party may be able to prove more easily that they are affected than a clause that simply specifies “failure”.

Some clauses may even go on to allow a contract to be terminated if the force majeure event continues for a specified period.

Of course, any force majeure clause must be read in conjunction with the remainder of the contract.

Given the announcement on Monday where the government adopted a stricter enforcement regime with people only being allowed to leave their homes in certain limited circumstances, this will undoubtedly hinder a business’ ability to continue providing goods and services. Some force majeure clauses may already contain wording that refers to the inability of a party to comply with a contractual obligation due to compliance with a government request/order.

What if the contract does not contain a force majeure clause?

English law does provide a mechanism for parties to argue that a contract has been frustrated if it becomes physically or commercially impossible for the obligations to be performed due to events occurring after the contract was entered into. If a party can prove a contract has been frustrated, they may be able to avoid liability relating to non-performance.

However, frustration is difficult to prove and can only be used if the event is considered to be fundamental, unforeseeable at the time of contracting and there are no other means by which the affected party may perform its obligations. It is generally accepted that a party being let down by one of its suppliers will usually not be held to amount to frustration.

One thing to take from COVID-19 is that having appropriate force majeure clauses could be a useful tool in tackling situations like this in the future.

What to do next?

If you have any concerns relating either to existing contracts or contracts that your business is considering entering into, the best course of action is to have these reviewed by a solicitor. Hegarty Solicitors offer a fixed fee contract review service and specialises in a number of other areas relating to contract law. Please contact us for a no-obligation discussion if you require any further advice.

Our corporate and commercial teams are here to support your business during this unprecedented time of uncertainty. For further advice please email ashley.sutherland@hegarty.co.uk.

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