UpdateConsidering Force Majeure during the Coronavirus

18th May 2020
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COVID-19, colloquially known as the Coronavirus, was declared a global pandemic by the World Health Organization (WHO) on 11th March and it has since affected a total of 213 countries and territories across the world. The pandemic is ongoing at present.

As a result of this pandemic, Businesses throughout the country and the world will be concerned with the performance of their contractual obligations. Force Majeure (FM) clauses (meaning “greater force” in French) exist to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling their obligations but it is not always straightforward to invoke such clauses.

English Law’s perspective of Force Majeure

Force Majeure in English law exists on a purely contractual basis without any statutory backing and it is up to the parties to determine and define events that constitute force majeure. If you do not have such a clause in your contract, or if it only applies in favour of your counterpart then you simply cannot rely on it.

The courts in England have a very narrow interpretation of force majeure and so it is essential for these clauses to explicitly say which circumstances are covered. If an event is not mentioned then the parties to a contract run a risk of excluding a particular event from the scope of the force majeure clauses.

It is a common feature in force majeure clauses to refer to ‘acts of God’ or ‘acts of nature’ and it is up to the parties to determine if that includes pandemics (as declared by the WHO), diseases or any other type of biological or medical threat to human health. Even though FM clauses differ there are the following factors to consider:

1) Is Covid-19 specifically covered as a force majeure event in the contract?

2) If it is not specifically covered as a force majeure event, then would it fall under a general wording or whether there has been a judicial decision that encapsulates the interference language commonly included in definitions of FM?

3) Has the occurrence of Covid-19 impact the company’s performance of its contractual obligations? (This is to establish causation and is a factual question that will turn on the actual wording of the clause).

4) Has the company used all reasonable endeavours to mitigate the effects of Covid-19? (The party that is claiming force majeure relief is usually under a duty to show that it has taken reasonable steps to mitigate or avoid the effects of the force majeure event).

5) Have the notice requirements been satisfied? (Parties will wish to ascertain whether prompt notification is a contractual condition precedent to relief or not).

6) What consequences are there to establishing force majeure events? (i.e relief from performance of the contract and avoiding the risk of default or sanctions).

7) If there is a change in the law then what impact would that have on the contract? (In some contracts, a change in the law by the government may trigger a change in the relief and compensation).

Insurance Considerations

As a result of the Covid-19 global pandemic, business have or will be suffering losses as a direct consequence. Businesses should therefore review their insurance policies in place if they have such cover. Such policies usually have a strict notification timeframe so businesses have to take action in identifying these issues early. Additionally, businesses may not be fully interrupted by the Covid-19, and therefore would not fall within the confines of their own insurance policy coverage, even though they have incremental losses. Therefore, the onus is on businesses to carefully review their own insurance policy and determine whether they have sufficient coverage or not for situations where there is a loss of income for example.

Practical Considerations

1) Review the precise wording of the force majeure clause(s) in your contract

2) Pay close attention to the notification period

3) Keep abreast of the changes in government policy during the Covid-19 pandemic

4) Track how the pandemic has caused delays and losses to your business.

5) Prepare an emergency plan of action to demonstrate that the business has taken measures to avoid/mitigate the effects of the Covid-19 pandemic (if you don’t already have a plan of action or contingencies in place).

6) Take all necessary recommended steps to protect your businesses’s workforce from the harm of Covid-19 and make all emergency plan’s readily accessible to everyone so that maximum precaution is taken at all times.

It is important to also consider what the ‘Best Industry Practices’ are so that the economic and financial impact of the Covid-19 is reduced.

 

If you have any queries please contact Raphael Uribe at raphael.uribe@wlegal.co.uk or Nigel Kushner at nigel.kushner@wlegal.co.uk

 

 

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