With confirmed cases of coronavirus (COVID-19) continuing to rise worldwide, several countries are implementing highly restrictive measures to limit the spread of the virus. These include lockdowns, quarantines and travel bans.
The impact of the outbreak on global trade may be profound. News outlets have reported Chinese authorities actively supporting local businesses by issuing record numbers of certificates to aid claims of Force Majeure. These claims are raised to temporarily excuse parties, without any liability, from performance of a contract due to some external event - in this case the outbreak - until the event has ceased to block performance (Contracts may provide for termination as opposed to mere suspension of performance should the event endure for a significant length of time). We encourage businesses to take all necessary steps to mitigate the risks that Force Majeure claims may have to their continued operations.
There is no common law doctrine of Force Majeure under English law. Any consideration as to whether a Force Majeure event has occurred under a contract must begin with looking at the wording of the Force Majeure provisions in that contract and specifically the definition applied to the term "Force Majeure". Typically, Force Majeure is defined as one of an express list of events (act of God, flood, earthquake etc.), or any other event, provided that such event is reasonably out-with the control of a party.
Unless the contract states otherwise, a party's claim shall rest on its inability to perform being solely due to the Force Majeure event. The event must constitute a legal or physical prevention to performance, as opposed to simply making it more difficult or less commercially appealing. In addition, Force Majeure provisions generally impose a requirement on the party making the claim to mitigate the impact of any Force Majeure event.
What if you get a Claim?
With governments applying even greater measures to limit the number of infections, the likelihood of receiving (or needing to issue) a Force Majeure claim is increasing day-by-day. Businesses should consider the following steps:
- businesses should make their contract managers / legal departments aware that they should expect to receive (or issue) Force Majeure claims in the coming weeks and months, particularly if their supply chain is based in locations with significant outbreaks;
- Force Majeure under English law is ultimately a matter of contractual interpretation. Consideration should be given as to the express wording of the provisions in your key contracts to determine your exposure;
- the rules regarding interpretation of Force Majeure provisions may vary from one jurisdiction to another. Businesses should familiarise themselves with the governing law of the relevant contract as it relates to Force Majeure;
- businesses should also review what specific notice requirements there are relating to a Force Majeure event and how they can be adhered to;
- consideration should be given to contract terms out-with the Force Majeure provisions, or legal doctrines applicable to the law governing their agreements, and whether they may have any impact on the situation; and
- businesses should recognise the risk of counterparties being forced to breach a contract regardless of the Force Majeure provisions if their government has imposed legal restrictions that prevent them trading.
Should you require any further information regarding Force Majeure claims, please do not hesitate to get in touch with your usual Brodies contact.