As well as the human cost, business owners of all sizes will already be feeling the effects of COVID-19 in many different ways, including falling demand and problems with supply. Insurers may be able help if there is adequate cover. Additionally the terms and conditions of your contracts may also be able to assist in the form of a force majeure clause.
As supply chains are disrupted and events, especially those backed by huge sponsorship deals, are cancelled, there are many ways in which contracts and deals will be affected.
You may have already heard about something called “force majeure” on the news. This is likely to be heard more and more in the coming months as the cost to businesses inevitably grows. Here we provide a brief summary of what this is and what it could mean for your business.
What is a force majeure?
Force majeure is French for “greater force”. It is often referred to in contracts but rarely used apart from in exceptional circumstances.
Force majeure protects a party from liability when it is prevented from performing its obligations under a contract due to circumstances outside its control. These can include natural and unavoidable catastrophes. In recent years, not least due to SARS, force majeure clauses have been drafted to include pandemics and epidemics.
Constructing a force majeure clause
The wording of the clause is absolutely key. Force majeure itself does not mean anything in English law. It needs definition and the wording of the definition is critical in determining if it applies.
Force majeure can either suspend performance of a contractual obligation i.e. give a party more time or excuse performance entirely.
Depending on your situation and your position in any supply chain, you may find that a force majeure clause is being used against you, or you may need to rely on one. It is important to remember that it must be COVID-19 which has prevented or hindered the performance of a contractual obligation or obligations and not some other factor.
Identifying an enforceable clause
If the clause is worded appropriately, COVID-19 might well be the reason why contractual obligations do not need be honoured. Some clauses will mention other factors such as “restrictive government orders”, “causes beyond our control” or “acts of God”, for example.
While the contract in question may not explicitly mention an epidemic or pandemic, there are still ways in which a force majeure clause can be interpreted to apply to COVID-19. It will also depend if a list of potential triggers for the clause is exhaustive or not. The defined events must be analysed to determine whether this pandemic is covered.
If you have a contract with a supplier or client that you require assistance in examining or creating, please do not hesitate to contact our corporate law experts.
As well as drawing up watertight contracts, if you need help in enforcing your force majeure clause or defending your position against one, our commercial litigation experts will be able to help.
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