Force Majeure and Coronavirus – how this could affect your contracts
A reminder of the potential contractual protection where commercial arrangements are affected by the coronavirus.
The outbreak of the coronavirus that originated in Wuhan, China continues to dominate global headlines. On 30 January 2020, the World Health Organisation declared a public health emergency of international concern. The Chinese government has implemented a series of quarantine measures and travel restrictions, causing disruption across various sectors in China, and several national governments, including the UK, are advising against all but essential travel to mainland China.
Given the economic importance of China, as the world’s second largest economy and largest manufacturer, accounting for 20% of global manufacturing output, any continuing disruption of shipments to and from China may have significant implications for the supply chains of many businesses in the UK, causing interruptions and delay.
Businesses facing difficulties in meeting their contractual obligations because of disruption caused by the coronavirus outbreak should consider invoking the force majeure provisions in their contracts.
A force majeure provision typically excuses one or both contracting parties from performance of a contract in some way following the occurrence of events beyond the reasonable control of the party concerned. Whether a business can invoke a force majeure provision in a contract will generally depend upon the wording of the clause. Important points to consider in this regard are:
- How is force majeure defined?
- Some force majeure provisions may reference specifically “epidemics” or “civil emergencies”. In the absence of specific wording, it will be important to consider the scope of the clause carefully to determine whether it will include the coronavirus outbreak or any related government restrictions.
- It is important to remember that a party can invoke a force majeure provision generally only where it is prevented from performing its contractual obligations. The fact that performance may be more difficult or more costly will typically not be sufficient.
- Do any steps need to be taken to benefit from the force majeure provision?
- Frequently, force majeure provisions can be invoked only where notice is given by the affected party within a specified time of becoming aware of the impact on contractual performance.
- Force majeure provisions will usually require the affected party to show that it has used its reasonable endeavours to prevent, or at least mitigate, the effects of the force majeure event.
- What is the effect of invoking the force majeure provision?
- Generally, the effect of invoking a force majeure provision is to suspend contractual obligations for the period during which the force majeure event prevents performance. Once the event has come to an end, the obligations of the parties recommence.
- Once a force majeure provision has been invoked, the affected party’s liability for failure to perform is usually removed for as long as the force majeure event continues.
- Force majeure provisions may include a right for either or both parties to terminate the contract if the force majeure event continues beyond a specified period of time.
Businesses faced with the possibility of disruption due to the coronavirus outbreak should review the force majeure provisions in their contracts. In addition to understanding the scope of the clause, it will be important to be aware of any steps that must be taken to trigger the protection which the clause may afford and to understand the consequences of invoking that protection.
For more information on invoking force majeure or any other contract queries, please contact Matthew Sutton on 0121 237 3064, or another member of the commercial team in your local office.
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