Can Coronavirus Constitute a Force Majeure Event?

Can Coronavirus Constitute a Force Majeure Event?

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As the consequences of the Coronavirus (COVID-19) continue to affect swathes of people, in terms of travel, health and supply chains, Charlotte Newlyn of IBB’s Corporate & Commercial team looks at where parties stand with regards to the “force majeure” provisions in their contracts.

What is a force majeure event?
Force majeure is a legal concept derived from French law and a force majeure event is usually an extreme or rare occurrence which is outside of either party’s control – these can include outbreak of war, terrorism, strikes or “natural disasters”.

Force majeure provisions seek to account for these unforeseen events, which could prevent a contract being fulfilled, and essentially protect the parties from liability for non-performance of their obligations under the contract following such an event.

In the event that a contract can not be fulfilled due to a force majeure event, different mechanisms can be engaged, such as postponing or suspending a party’s obligations under the contract, or bringing the parties back to the table to vary the contract.

So is the Coronavirus an unforeseen event?
This could be debated – on the one hand, recent past has seen many epidemics in the form of various flu outbreaks but, on the other hand, few would dispute the fact that Coronavirus has triggered panic, lockdowns and disruption on a scale incomparable to other recent flu outbreaks. Pair this with the WHO’s declaration that this outbreak is a global health emergency, and the courts are likely to judge this event as “unforeseeable”.

Further supporting this argument, the China Council for the Promotion of International Trade has offered to provide force majeure certificates to businesses who apply and can prove that they have been unable to fulfil their contractual obligations due to the outbreak. These certificates, although not binding on the courts or on contracting parties, would go a long way, both in court and to the other party, to successfully invoking a force majeure clause.

I don’t have a force majeure provision… or a written contract
Although we would also advise that parties seek legal advice and draw up written contracts when transacting with one another, we also understand that deadlines, arrangements and other pressures mean that this doesn’t always happen.

If you have a short-form contract which doesn’t include force majeure protection, or you have a simple oral contract, and you are unable to fulfil any contractual obligations because of the outbreak, the English law doctrine of frustration could be of assistance.

Where a party cannot fulfil its contractual obligations because of the Coronavirus outbreak, in the absence of a force majeure provision, the contract is said to be “frustrated”, i.e. it cannot operate.

What should I do now?
If you cannot, or fear that you may not be able to, fulfil any contractual obligations you may have, we would strongly advise that you seek legal advice as soon as possible. The consequence of invoking a force majeure provision or frustration can sometimes be the termination of the contract, so it is important for you to be aware of the relevant implications.

Contact IBB’s Corporate and Commercial team for more information

Our Corporate & Commercial team are on hand to review your contract and advise you accordingly. If you require advice please contact the team at IBB on corporate@ibblaw.co.uk or call 01895 207264.