Business

Coronavirus - Is the force (majeure) with you?

James Morrison

"DON'T worry about things you can't control" is an admirable life view. But for the lawyer, things which their client can't control is usually where their worrying really starts.

The coronavirus (Covid-19) outbreak has become the most recent example of an event causing disruption to businesses across jurisdictions and sectors, which would have been outside anyone's predictions six months ago. The level of disruption remains to be seen, but lock downs of large regions and ongoing cancellation of mass events means it is highly likely contractual obligations, which businesses have entered into, may become considerably more difficult to perform.

Most people would assume if a contract cannot be performed because of events outside the control of the parties, the contract would not be enforceable. But in Northern Ireland there is no law to this effect, other than the common law legal principle of "frustration" which is a difficult bar for defendants to overcome in court.

To address this, contracts will generally have (usually somewhere near the end) a "force majeure" clause. The concept originated in France in the 1600s and was essentially meant to absolve parties when "superior forces" intervened.

Unfortunately, the force majeure clause is commonly not reviewed or negotiated, and businesses may find themselves bound to perform a contract notwithstanding, due to the force majeure clause either being poorly drafted or non-existent.

The test to pass for force majeure is usually in two parts; firstly, is it a force majeure event? In most standard force majeure clauses, epidemics along with earthquakes and wars are included as such an event. Covid-19's status has not yet reached pandemic status but most consider it has reached this test. The next burden will be on the defaulting party to prove that there were no reasonable steps they could have taken to avoid or mitigate the consequences of the event.

This may not prove as easy to do with Covid-19 related consequences, particularly if other more costly options were available to the defaulting party, which would have allowed it to perform the contract. It has already led to a number of legal cases particularly in relation to Chinese companies and more will follow in the coming months.

It is likely that one of the outcomes will be the rise of "business continuity" clauses in contract where suppliers will be obligated to continue to perform their contracts (and the force majeure clause will be altered to prevent them getting out of this) - and also implement their pre-approved business continuity plans upon request by the customer.

Finally, another superior force to consider will be that of the State. Will there be emergency legislation imposed in Northern Ireland to close certain locations or stop all travel opposed to the current guidelines and recommendations?

In those scenarios a further common law defence of "illegality" could arise on the basis that contracts which would require performance of unlawful acts (such as leaving the country) will not be enforceable.

We are presently some way off this scenario, however as the last few weeks have shown the ability to foresee anything in these times with certainty is nigh on impossible.

:: James Morrison (james.morrison@dwf.law) is partner (commercial) at DWF Belfast

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