As a result of the coronavirus dominating the news since December 2019, we are starting to see a huge impact on business’ supply chains which may result in companies being unable to fulfil their contractual obligations.
Due to the unexpected nature of the outbreak, the full impact remains to be seen. However, one prediction is that parties affected by the outbreak may seek to rely on force majeure provisions in their commercial contracts for non-performance or delays.
Force majeure clauses are common provisions in commercial contracts and are used as a mechanism to excuse a party from the performance of its contractual obligations where it becomes impossible to perform due to a certain event that occurs that neither party can control.
There is no recognised meaning of a force majeure event in English Law, so it relies heavily on the wording and interpretation of the clause in your commercial contracts. Coronavirus could be covered by specific reference to “epidemic”, “pandemic” or “action taken by a government.”
There are also further hurdles that a party seeking to rely on the force majeure clause must show (e.g. that they have used all reasonable efforts to avoid or mitigate the effects of the outbreak and that they have complied with any notice procedures).
Although the World Health Organisation has recently declared the coronavirus as a pandemic, the impact of the coronavirus continues to change daily and it is therefore important to ensure that your commercial contracts cover all eventualities and that the contractual definition of a force majeure event expressly includes a pandemic.
How should your business mitigate against the risks?
- Review your existing contracts to consider whether they will be affected by the outbreak and consider your rights and liabilities in the event of non-performance or delay;
- Communicate with your suppliers, contractors and customers to talk over the likely impact of the outbreak on your specific relationships;
- Take steps to mitigate against those risks, including considering alternative means to perform the contract and checking whether you are covered under your insurance; and
- Ensure all future contracts are drafted to protect your interests against a similar outbreak.