202003.24

Coronavirus: Contracts and the Force Majeure Clause

The continued spread of COVID-19 and the relevant containment measures put in place to combat its spread, are having a profound and far reaching effect on the social care sector. As providers come under increasing pressure, it is reasonable for them to begin to understand, in more detail, their potential liabilities and obligations under their service contracts, as well as any B2B contracts in force.

Providers may well be able to limit their liabilities and obligations if they can show that COVID-19, and the provisions put in place to stem the spread, constitutes a force majeure event.

What is a force majeure event?

Force majeure clauses are typically used to excuse one or all parties from performance of the contract following the occurrence of certain events. The underpinning principle is that the event(s) are outside of the parties’ control, entitling the affected party to be excused from performance of part or all of their obligations under the contract.

There is no uniform application as to whether COVID-19, or more specifically the disruptive events caused as a result, will constitute a force majeure event. Each contract will depend on the drafting and interpretation of that contract’s specific clause.

Five things for businesses to consider:

  1. Review the contracts and obligations

Review how your current contractual obligations may be affected; do the contracts refer specifically to diseases, pandemics or epidemics?

Determine the risks of non-performance; just because a contract becomes more expensive to perform, does not automatically trigger a force majeure clause.  In all circumstances, you have a duty to mitigate the impact and effect of disruption on the business (whether you are the affected party or not).

  1. Communicate with contracting parties

Be conscious of contractual notice requirements: if prescribed by the clause, prepare any relevant notice for service, referring also to the relevant notice clause in the contract.

Keep the other party up to date should the business fear being unable to perform its obligations.

Discussing the issue with the other party may negate the need to rely on a force majeure clause and will maintain a better long-term relationship.

Be aware of the other party’s planned action if the business fears they may become in breach.

  1. Evidence decision making

Document the steps the business takes to protect itself and mitigate the disruption.

  1. New contracts

Ensure any new contracts include reference to the risks posed by epidemics and pandemics.

Review the risk of non-performance and check it is fairly allocated between the parties.

  1. Insurance

The business may have insurance cover, but the insurer may require certain notice and will evaluate the business’ actions to mitigate loss before deciding whether to indemnify or not.

No force majeure clause?

In English law, the doctrine of frustration may apply, however this is narrowly construed and will only apply where contractual obligations are impossible to perform. This narrow application may be reached in certain situations, for example, where a state-imposed lockdown has been enforced in an area where the contractual obligations were to be carried out.

Get in touch

If you have any questions or require legal advice regarding ‘contracts and the force majeure clause’ please be sure to contact our specialist solicitors on 01483 451 900, email on sols@gordonsols.co.uk or make an online enquiry and we will call you back.

Author: Benjamin Bull

Ben advises clients as part of our Corporate and Commercial departments as well as acting for providers as part of the Health and Social Care department.