The Coronavirus outbreak which started in Wuhan, China is likely to worsen, not just in China but throughout the world although importantly from a private party contractual perspective it has not yet been declared a pandemic by the World Health Organisation. Contractual provisions in relation to a pandemic are often expressly referred to in force majeure clauses in contracts and from the perspective of the contracting party which wishes to rely upon the force majeure clause that party will undoubtedly be in a stronger position if and when a pandemic is formally declared.
What is force majeure?
In contrast to many civil law jurisdictions, there is no doctrine of force majeure in English common law. Therefore, commercial parties who want to be able to rely on force majeure can do so by including a provision into their contract in accordance with English contract law (which generally gives parties the freedom to contract on the terms they see fit). Where parties include a force majeure clause in their contract, the consequences of an exceptional event will ultimately be determined by the precise construction and interpretation of that clause by the English courts.
The scope and extent of the force majeure clause in any given contract is of major importance when dealing with an unexpected or uncontrollable event. A typical force majeure clause allows a party to extend, suspend and/or terminate the performance of the contract when an extraordinary event occurs beyond the parties’ control. The English courts will give effect to a properly drafted and applicable force majeure clause as a provision allocating risk between such parties.
Parties to contracts without an express risk allocation for force majeure-type events should consider alternative routes through which to escape sanction or obtain relief. In such circumstances, the English common law doctrine of frustration may possibly be invoked to provide some level of protection to the party who would otherwise be in default.
A contract will be frustrated only in very limited circumstances where, for reasons attributable to none of the relevant parties, performance has become impossible, illegal or would be totally different to what was contemplated by the parties when the contract was formed.
Importantly the English courts have made it very clear that parties will not be entitled to relief from performance for frustration merely when performance is rendered more difficult, time-consuming or expensive.
Many sporting and social events are being cancelled throughout the world and very substantial losses are being suffered by numerous parties both directly and indirectly arising out of the Coronavirus outbreak. Presently it may be very difficult for a defaulting party to rely upon a force majeure clause even where one exists in circumstances where no pandemic has formally been declared.
Article written by Philip Rubens, Partner, Dispute Resolution.