As explained in our recent insight, the coronavirus is having a substantial economic impact on business: disrupting production, supply chains and travel. Businesses are turning to their contracts to consider whether the effects which the coronavirus is having, may entitle them to suspend their performance under a contract, claim an extension of time to perform, or give them a right to cancel a contract and walk away without liability. In this insight, we look at the some of the questions you may have surrounding the coronavirus and force majeure under English law.
1. Our contract is silent on force majeure. Will the concept be implied into our contract given the exceptional circumstances surrounding the coronavirus?
No, the concept of force majeure will not be implied into a contract. To rely on a right to suspend, delay performance or cancel a contract as a result of an event beyond your reasonable control, you will need an express force majeure clause in your contract (or wording to the same effect) giving you these rights.
Without an express force majeure clause, the common law doctrine of frustration may provide relief. For a contract to be frustrated, the coronavirus must render further performance of the contract illegal, impossible, or make it radically different from that contemplated by the parties. This is a very high hurdle – and it has previously been established that a contract is not frustrated where the contract becomes merely more expensive, or more onerous to perform as a result of the occurrence of the unexpected event.
2. Our contract does contain a force majeure clause – will it cover us if we can’t perform the contract due to the coronavirus?
The term force majeure has no established, recognised meaning in English law. Whether a particular clause is triggered will depend on the exact words that the parties have used – particularly the non-exhaustive list of events that are often included in a force majeure clause. The courts have confirmed that the proper approach to interpreting a force majeure clause is by reference to the actual words the parties have used, not their general intention.
It will therefore be necessary to review the drafting of the specific clause and analyse whether or not there is a basis for construing the clause as including the coronavirus.
Of course, that is not the only hurdle. Most force majeure clauses require a causal link between the unexpected event (or the event which is beyond the reasonable control of the relevant party) and that party’s delay or failure to perform the contract. Force majeure clauses may also require mitigation of the effects of the unexpected event, or that written notice is given. And where a force majeure clause is triggered, this may not lead to a right to terminate the contract, but simply a right to delay performance by the duration of the unexpected event.
That is to say, it is necessary not only to look at the list of events, but also the effect that the relevant event has on a party’s ability to perform a contract, and also the specific consequences on each party’s contractual responsibility when that event occurs. Different force majeure clauses in different contracts could therefore give very different outcomes in the same set of circumstances.
3. If we rely on a force majeure clause, will we have to show that, but for the Coronavirus, we could have, and would have, performed the contract?
Answering this question will depend on the construction and interpretation of the specific force majeure clause. The courts have recently confirmed that past judgments on differently worded force majeure clauses are of limited, if any, assistance. The key issue will be the drafting and interpretation of the clause in the specific contract.
In a recent case, the Court of Appeal held that if, but for the unexpected event, the relevant party would not have performed its obligations in any event, then that party’s failure to perform cannot be said to have resulted from the unexpected event, and the force majeure clause will not provide relief.
This interpretation is contract specific, but it is worth bearing in mind that it is probable that a party seeking to rely on a force majeure clause will need to be able to show that it is ready and willing to perform the contract, but for the unexpected event.
4. We are due to enter into a contract in relation to an event taking place next week, but may need to rely on the force majeure clause if we have to cancel the event due to the coronavirus. Can we still rely on the force majeure clause, given we are aware of the effects of the coronavirus before signing the contract?
The position is not definitive in relation to prior knowledge and force majeure clauses. It makes sense that a party seeking to ensure that a contract is performed in accordance with its terms, would argue that its counterparty cannot reasonably be entitled to rely on a force majeure clause which that counterparty could reasonably foresee would affect the performance expected of it.
However, it has been held (Navrom v Callitsis Ship Management SA) that there is no justification for limiting the ordinary meaning of words in a force majeure clause to events or states of fact which are not in existence at the date of the contract or to those which are unpredictable at the time it was made.
The overriding message is that force majeure clauses under English law are not interpreted according to a rigid set of principles. It all depends on the drafting, so it may pay to give particularly close attention to the wording of force majeure clauses in your contracts.