10th March 2020
So what is force majeure?
Force majeure is a legal concept which effectively excuses a delay or failure to deliver on the agreed terms of a contract in the case of certain events.
There is no English law meaning of ‘force majeure’, and therefore a contract must contain a specific clause for it to apply. It’s vital that this clause identifies what events are deemed to be ‘force majeure events’.
As head of our Commercial Contracts team, I commonly see three different variants of the force majeure clause, which define it as:
(a) A defined list of events
(b) Anything outside the reasonable control of the parties
(c) Clause (b) with the addition of a non-exhaustive list of events, by way of example.
So is coronavirus a force majeure event?
If your contract has a type (a) clause, the recent coronavirus outbreak will only be considered a force majeure event if the clause includes “epidemic” (or “pandemic” in the event that the WHO declares coronavirus a pandemic, which, at the time of writing, it has not). If your contract has a type (b) or (c) clause, then it is very likely that the coronavirus will be seen to be an event outside the reasonable control of the parties.
As a supplier, do I need to worry about any delays or failures caused by coronavirus if I have a type (b) or (c) clause?
It depends on the actual wording of your force majeure clause. Some will only excuse the failure to deliver on the terms of the contract (in other words to “perform”) if the coronavirus has made it legally or practically impossible to do so. Other clauses will refer to situations where performance is “hindered” or “delayed”, which is much broader in its meaning.
It’s very unlikely that your clause will be triggered if performance simply becomes more costly or unprofitable.
The impact of your force majeure clause will also depend on what was known about coronavirus at the time the contract was entered into, and whether there are any reasonable steps you could take to avoid the effects on performance.
Is there anything else I need to know?
Yes! The force majeure clause will usually set out a procedure, which must be followed to the letter if you want to rely on the clause. Usually this requires you to formally notify the other party to the contract. Make sure you follow any 'notice' provisions when you do so.
Also (and I would say this wouldn’t I?), take advice early to ensure you're in the best position possible to deal with any disputes or claims.
What should I look out for or include in a force majeure clause?
The force majeure clause is often overlooked and taken for granted in contract reviews and only becomes relevant in a crisis. Its use should be part of any business continuity plan.
If you don’t know what your contracts say about force majeure, now is a good time to find out.