Businesses around the world will be taking a closer look at the force majeure clauses in their contracts to assess their obligations in the event that non-performance arises. It is possible that the current COVID-19 pandemic will put many of these clauses to the test in the near future as suppliers struggle to complete contracts for the supply of goods or services.
By way of background, a force majeure clause is often included in contracts for the purpose of excusing a party from performance of a contract following the occurrence of certain events which are outside a party's control – the party relying on the clause would not be liable for its failure to perform the obligations.
There is no doctrine of force majeure which is implied into contracts under common law. The relevant circumstances and the exact wording used within the agreement is therefore crucial to establishing whether the clause will apply. Accordingly, it is likely that the precise language of such clauses will come under increasing scrutiny during this crisis and for the subsequent years to come. Businesses may begin to ponder whether it is prudent to make specific references within their contracts to “pandemics”, “epidemics”, “diseases”, “quarantines” and other relevant language
Alternatively, the common law doctrine of Frustration exists and may apply in the absence of an express force majeure clause. Frustration is applied very narrowly by the courts yet may come into play where an unexpected serious event occurs after the formation of a contract which is beyond control of the parties and renders it impossible to fulfil the contract, or drastically transforms the relevant obligation.
It remains to be seen to what extent COVID-19 will have a lasting impact on the way parties do business and interact with each other. Please bear in mind that Hassans remain open and on hand during these challenging times. Please do not hesitate to reach out to me or another member of our Corporate and Commercial team should you wish to discuss contract drafting or review your existing contractual arrangements.