What is a contractual position?
Since establishing itself in Brighton and Hove, the coronavirus has spread across the country and businesses are faced with questions around contractual obligations. In the English legal system, contracts require ongoing performance. This principle is an absolute, which means a party affected by the coronavirus outbreak will still be required to perform any obligations under a contract or face court action by the other party for failure to perform.
There are only two exceptions to this rule:
- the operation of any force majeure in a contract; or
- frustration, which is a common law concept
What is force majeure?
I get asked this a lot. Force majeure is the name given to unforeseen circumstances in contracts, which sounds quite simple, but comes with its own complications.
If a contract has a force majeure clause, it should deal with how the parties’ responsibilities are affected by an event, such as the coronavirus, that may affect one of the party’s capability to perform the contract.
Most force majeure clauses vary, so the clause would need to be considered carefully by one of our contract solicitors in Brighton and Hove as to your specific contractual obligations. Set out below are the factors we would normally consider:
- Under the current circumstances, attention would be given to the coronavirus epidemic and specifically if it is covered as a force majeure event in any relevant contract. If it is covered, then we would have to consider other necessities that need to be fulfilled to constitute force majeure.
- On the assumption that the coronavirus epidemic is not covered in your contract as a force majeure event, Britton and Time’s contract solicitors can advise if it is the type of event that would fall under a general force majeure wording. We can further advise if there has been a government decision or administrative case stopping performance that meets some political interference. This wording is usually included in a force majeure clause but would have to be checked carefully.
- We would then look at the contract to see if it excludes any events that could have been reasonably avoided or overcome. Recently, some writers have suggested that this could require comparison with the actions taken after the 2003 SARS outbreak. The word “reasonably” must be considered in an objective way.
- Causation must be established. A party seeking to rely on a force majeure clause in a contract must usually establish that the force majeure event has stopped or delayed performance of the contract. This will be a factual question; however, it will also turn on the exact wording of the force majeure clause.
- We then need to think about any mitigating duties that apply. This is because a party claiming force majeure relief is under a duty to show that it has taken ‘reasonable steps’ to alleviate and evade the effects of the force majeure event.
Are there any notice requirements in the contract that apply?
Britton and Time’s contract solicitors in Brighton and Hove will ascertain whether there were any prompt notification requirements which is normally a contractual condition standard if you wish to seek relief.
What are the consequences of establishing force majeure?
In most contracts that we see, showing force majeure will lead to release from performance. This means avoiding the risk of termination of the contract, and an extension of time to set dates and timetabling.
Usual practice would be that each party bears its own costs from any force majeure delay. There are exceptions which we can consider for you and we can provide written advice.
It is important however to note that lengthy periods of force majeure can lead to a right for one party to end the contract.
In cases where the parties do not want this to happen, we will engage discussions sooner rather than close to any deadline. Sometimes these discussions can be held on a without prejudice basis.
Britton and Time’s contract solicitors would consider any decisions or acts taken by governments and public authorities in response to the coronavirus epidemic which may prompt a change in law and compensation. This is often restricted to changes in law in a project or host country.
What is frustration?
Where there is no force majeure clause, you might have hope in the common law doctrine of frustration.
This means that a party is discharged from its contractual obligations because a change in circumstances makes it impossible (physically or commercially) to perform a contract, or performance would be fundamentally different.
It is a very high bar to meet and the courts have said that the conditions where it can used are incredibly narrow.
The high bar will be reached in situations arising from coronavirus where the contract requires performance in a country that is under a state-imposed quarantine.
In many instances, parties should and probably will refer to contractual force majeure clauses if provided.
Where frustration applies, the results are set out in the Law Reform (Frustrated Contracts) Act 1943. This allows recovery of money paid out under a contract before it was satisfied however it is at the court’s discretion as to expenses incurred by the other party.
If you are struggling to preform on a contract or you simply cannot meet your contractual obligations then you should seek legal advice as early as possible. Speak to one of our contract solicitors today at Britton and Time by clicking here or calling 01273726951.