The COVID-19 Coronavirus is disrupting both public life and business across the globe in various countries, events being called off, companies who import from China facing severe delays due to the business running on skeleton staff and concerns around travel.
More than 100,000 people worldwide have been reported to be infected with the coronavirus (COVID-19), the illness that brought China’s manufacturing almost to a halt.
As other parts of the world have become affected and it is all that is spoken about in our news, it is a good idea to assess your contractual obligations. If you are in an industry that relies on imports or events or one that without staff you simply could not deliver what was promised, then it’s a good idea to check your contracts. Should there be no written terms in place, then you may find yourself in some difficulties.
Ideally you would want to see a well written “Force majeure” clause in any written contract, whilst also playing close attention to the governing law clauses that will state which jurisdiction will apply to the interpretation of the clause. Whilst you are trading in England or Wales if the party you are in contract to is in another country and you have signed up to their terms this is likely going to be under their jurisdiction. These clauses are quite common in commercial agreements but are actually rarely triggered.
Force Majeure, which is Latin for “superior force”, is a provision in a contract that allows a party to suspend or terminate the performance of its obligations when certain circumstances occur which are beyond their control. These circumstances are generally called “acts of God” and usually cover situations such as flood, terror attacks, or natural disaster. It would be reasonable to believe coronavirus would also be covered here but this is by no means certain, if it affected your business so much that performance is inadvisable, commercially impracticable, or impossible then this clause would relieve you of your contractual obligations.
In order to apply a force majeure clause and allow relief from the performance of the contract, the situation that has arisen must be outside of both parties’ control. It also needs to be unavoidable and unforeseeable, conditions that can be hard to prove sometimes. This relief is usually the suspension of the parties’ obligations under the contract during the “force majeure” event, and, if the event continues for a certain length of time, the right to terminate the contract. It may be required to show that the party did all they could to attempt to perform the contract.
The party seeking to rely upon a force majeure clause for relief from any contractual obligations would need to demonstrate however that there are no reasonable alternative means to perform its obligations under the contract. If the contract is simply more difficult, more expensive to perform or you have your own coronavirus concens, a force majeure clause is unlikely to apply. It is also important to note that a force majeure clause does not cover failure to meet contractual obligations due to negligence, lack of available funds, or anything else that is avoidable.
Lets say for example you were holding an event, 100 people were booked on and have already paid for it. Whilst far too many people operate these types of things without any terms in place. The first thing I would say is, check the contract. You are in contract with at least two parties here, your attendees and also the venue, possibly even more depending on the size of the event, caterers, videographers etc etc. If you decide that you are concerned yourself about the coronavirus and based purely on ‘worry’ you decide to cancel, it is likely you will still need to pay the venue (and whoever else) and all the attendees will want a refund. This of course would be very expensive. However if it was cancelled based on government advice then this would be where you would need to check you insurance policy. Business interruption insurance is often an add on to your policy and like most things you would need to check the terms to see if you are covered. This is similar to, if as an individual you have a holiday booked, just cancelling due to your own fears will not be covered by your insurance policy, being advised not to travel by the FCO will be.
Should a contract not contain a force majeure clause, parties may seek to rely on the doctrine of “frustration” to free them from their obligations. However, “frustration” will only be available in limited circumstances where performance of the contract has become truly impossible, or where there has been a change of circumstances so fundamental that it would be unjust to hold the parties to their original agreement. If a contract is frustrated, the contract will terminate, and the parties will be released from all future obligations. Not quite so helpful if you are just in need of more time.
It is likely the social misery caused by the coronavirus is set to continue for the time being, as will the legal problems that are going to rise. Parties to a contract should closely monitor the situation and seek professional legal advice to ascertain their contractual and common law rights when necessary.