Protection from Coronavirus - Covid–19
On 30 January 2020 the new Coronavirus (or Covid-19) was declared a public health emergency of international concern by the World Health Organisation. The virus has already caused worldwide economic disruption, with severe impacts to global financial markets. It is likely commercial entities will experience more disruption, especially if the spread of the virus prevents companies and individuals from meeting their obligations under contracts.
A force majeure clause may provide protection if you cannot meet your obligations under a contract due to effects from the Coronavirus. On the other hand, it is crucial to know what can be done if you are faced with a force majeure claim against you.
What is force majeure clause and how can it provide protection for you?
A force majeure clause (meaning "superior force") is often inserted into contracts to:
- excuse parties to a contract from performing their obligations under the contract; or
- suspend their obligations under the contract due to unforeseen difficulties out of their control or foreseen problems that are likely to occur, but the nature or extent cannot be foreseen.
For example, "acts of God" such as floods or other natural disasters, epidemics or pandemics may constitute a force majeure event.
In Ireland, there is no legal presumption of force majeure. An express force majeure clause must be included in a contract and parties must consider what type of events they intend to be covered, if they plan on relying on it. A general catch all force majeure clause will likely be held void for uncertainty.
If there is no force majeure clause in your contract, you might be able to rely on the doctrine of frustration. In Ireland, the threshold for the frustration of a contract is very high. The application of the doctrine can be limited and narrow, with no scope for partial frustration of a contract. A force majeure clause may provide you with more flexibility, allowing part of your contract to be suspended, postponed, or certain obligations excused, rather than termination of the entire contract.
Will the Coronavirus outbreak constitute a force majeure event?
Irish courts will likely interpret a force majeure clause strictly. Whether the Coronavirus would constitute a force majeure event will depend on each particular contract; whether the virus has hindered performance of the contract or made it impossible; whether such outbreak was foreseeable at the time the contract was made; and what are the rest of the written terms of the contract.
Key issues to consider:
In certain industries, legislation may provide for a course of action in unforeseen circumstances. For example, in the airline industry, passengers may be protected in specific cases due to unexpected events such as flight delays or cancellations. In the grocery goods sector, contracting parties shall not be liable for failure to perform contractual obligations as a result of circumstances beyond their control.
However, in the absence of legislative intervention and given the narrow scope of frustration in Irish law, a force majeure clause may provide greater protection.
Business interruption insurance
If you are availing of a force majeure clause or a force majeure claim is being made against you, it is essential to check if any insurance policies you hold might cover the losses incurred. In some instances, you may well have a business interruption insurance policy which could cover the loss suffered if your company is interrupted following a disaster.
When relying on a force majeure clause or defending a claim it is crucial that you ensure you observe all obligations stipulated by the clause.
It may be a requirement that notice of the event be served in writing within a certain timeframe for the force majeure clause to be properly triggered. An estimation of the impact and duration of effects resulting from the force majeure event may need to be outlined. Notice of the cessation of the event may also be required.
Other relevant considerations may include: whether there were any reasonable steps the party seeking to rely on the clause could have taken to avoid or mitigate the effects of the force majeure event; and whether the party complied with any other relevant obligations under the clause.
Practical tips when considering a force majeure clause:
- A review of all contracts connected to any of the industries or countries affected by the Coronavirus should be undertaken to ensure that the contract includes a force majeure clause. As set out above, force majeure is not a legal presumption.
- Ensure a detailed evaluation of the force majeure clause is undertaken.
- Adherence to any notification requirements or obligations under the contract is very important.
- Assess if any measures can be undertaken to mitigate the effects of the event.
See here for more practical guidance for employers on how to handle the Coronavirus in the workplace.