In this guide for businesses, we explain what a force majeure is, whether the Coronavirus pandemic is a force majeure event, what a suitable clause looks like in a document and how to give notice to a contracting party.
With the country now in lockdown for the foreseeable future, more and more businesses grapple with how to survive during this crucial time. The lockdown effectively prevents many businesses from carrying out their normal activities; many business owners are faced with situations where employees aren’t able to go to work, raw materials cannot be delivered and goods are not being supplied to customers. This could render a business in breach of contract, through no fault of their own.
Many businesses are looking to their commercial contracts. Can a force majeure clause excuse this disruption in the supply chain, and prevent a breach of contracts and potentially expensive commercial disputes?
Force majeure clauses are frequently and specifically included in certain types of commercial arrangements. They recognise the specific situations in which the parties involved would not be required to fulfil their contractual obligations. To be effective, the clause must be specific, and set out precisely what matters are included in the definition of ‘force majeure’ for the specific contract to which it relates.
Whilst the specifics of each contractual document must be considered, a force majeure clause might look like this:
Neither party shall be in breach of this agreement nor liable for delay in performing, or failure to perform, any of its obligations under this agreement if such delay or failure result from events, circumstances or causes beyond its reasonable control. In such circumstances the time for performance shall be extended by a period equivalent to the period during which performance of the obligation has been delayed or failed to be performed. If the period of delay or non-performance continues for 2 months the party not affected may terminate this agreement by giving [NUMBER] [days’] written notice to the affected party.
These clauses may entitle a company to suspend performance of obligations, or terminate the contract completely.
The specifics of the contracts are incredibly important here, and may limit their implementation. As to whether the Coronavirus crisis is a force majeure event depends on the wording of the contract terms and the obligations required of each party. In short it is fact and contract specific as to whether the virus would amount to a force majeure event.
If no specific provisions are made within the contract itself, relief may nevertheless be found in the concept of “frustration”. Frustration occurs by reason of an unforeseen event or series of events so that, without the fault of either party, a contractual obligation has become incapable of being performed because the circumstances now render it so radically different that which was originally agreed. The lockdown during the Coronavirus crisis may amount to such a “frustrating event”.
However, the burden of proving a frustrating event is a heavy one. Any individual or company entering into any new contracts during this period of uncertainty would be well advised to make sure that a detailed and comprehensive “force majeure” escape clause is carefully drafted and included.
You must notify in writing (to be able to prove the communication) that a force majeure event has taken place, providing details of the facts, and confirm that as a consequence you will consider that you are released from your obligations under the contract. In the communication include details of the following:
Keep reviewing the position and document the chronology of events which are preventing you doing what the contract requires you to do, and steps which you take to mitigate against the effects of the force majeure event. If you would like to see a free draft template letter please do email us.
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