Coronavirus and Contractual Protection
The outbreak of the Coronavirus is impacting on travel and trade, and could cause significant business disruption. In particular, the virus may have an effect on the delivery of goods, either to or from your business, or may lead to disruption to any planned provision of services or events.
Force majeure clauses are often included in commercial contracts and usually excuses one party from the performance of its contractual obligations following the occurrence of certain events. The clause then typically outlines what parties must do if certain events arise. The term “force majeure” has no recognised meaning in English Law so its scope varies in contracts.
You should review the terms of your contracts to determine if such a clause would include any non-performance due to the virus, or future outbreak. Although coronavirus itself is unlikely to be identified, it may instead be covered under the terms ‘epidemic’ or ‘national emergency’. Many force majeure clauses can lack detail and instead apply to non-performance due to an event beyond their control. However, even though a court or tribunal may be sympathetic to circumstances of non-performance due to the outbreak, it is not guaranteed that a general clause will be enforced. In addition, the affected party must also show that it has taken all reasonable steps to avoid or mitigate the event and its effect on the party’s contractual performance.
How should you mitigate the risk?
- Review your contracts to check which ones may be impacted by closures or delays and where you may seek to suspend performance or terminate
- Review your contracts to see whether or not the force majeure clauses cover business disruption caused by pandemic or crisis situations.
- Communicate with your suppliers, contractors or customers regarding the impact of the outbreak.
- Take steps to mitigate through business continuity planning, including checking the terms of any insurance policies you hold.
For advice on your position in your contracts or if you have any questions relating to this topic please contact the commercial team.
The impact of the coronavirus outbreak on the UK as a whole is yet to be seen but businesses should keep an eye on government guidance as it is updated.