If COVID-19 prevents you from fulfilling a business contract, you may be able to be released from your obligation by claiming ‘force majeure’. Darren Davies, partner at Hutchinson Thomas, explains how it works.
The term ‘force majeure’ refers to unexpected circumstances that prevent someone from fulfilling a contract. With COVID-19 currently shutting down businesses, production lines and supply chains, many people are asking whether coronavirus is a force majeure event.
In order to be able to cancel or postpone a contract by claiming force majeure, there must be a force majeure clause in your contract. Great care needs to be taken when wording force majeure clauses, because a lot can hang on that wording should you need to rely on that clause.
Force majeure clauses are most common in contracts in industries that are vulnerable to catastrophic occurrences – for example, the oil and gas industry or the construction industry. They usually stipulate that on the occurrence of a specific event, or more generally, an event outside of the parties’ control, one or both of the parties is permitted to cancel the contract, or part of the contract, or to claim a time extension for its completion. For example, it might state that the parties are excused from their commitment if prevented from fulfilling it due to ‘acts of god’ (typically natural disasters) and events such as war, terrorism or government sanctions.
To claim force majeure, you need to be able to demonstrate the occurrence of one of the events referred to in the force majeure clause in your contract. A specific reference to “pandemics” will make this easier. If your contract does not include that, you may still be able to argue that the virus is an event that triggers this clause.
You’ll need to be able to prove that you have been prevented, hindered or delayed from fulfilling your part of the contract because of that event; you must be able to demonstrate that your failure to fulfil your obligation was due to circumstances beyond your control.
It’s also important that you can prove that there were no reasonable steps you could have taken to avoid or mitigate the event or its consequences. For example, could you have changed your manufacturing location or working arrangements to make it possible to fulfil your part of the contract? If there was realistically a way you could still have delivered on your promise, you will not be able to claim force majeure.
If you want to claim force majeure, you’ll need to issue a notice of this intent to the other party, and support this with the evidence required to fulfil the force majeure clause as it is laid out your contract. Be aware that some contracts have a limited ‘time bar’ in which you are allowed to claim force majeure, so you may need to act promptly once it becomes clear you cannot fulfil your contractual obligations.
If you believe that COVID-19 has prevented you from fulfilling a contract, please get in touch with our business and commercial team today and we can help you establish whether you can claim force majeure.
For more information, contact Darren Davies on 01792 439000 or email darren.davies@hutchinsonthomas.com