When a contract is entered into, each party is liable for fulfilling their part of the contract, even if circumstances change and it becomes more difficult or more expensive for them. There are two exceptions which may apply: force majeure and frustration.
A force majeure event is an extraordinary occurrence or circumstance beyond the control of the parties to the contract which prevents contractual obligations from being fulfilled.
Relying on a force majeure clause
In English law force majeure will not be implied into a contract, there must be a clause addressing it. The clause will be open to interpretation in respect of any event which is not specifically listed. This means that if you wish to enter into a contract with a force majeure clause that allows you to end the contract in the event of disruption caused by Covid-19, the clause will need to be carefully drafted and refer to an epidemic or pandemic for you to be reasonably certain that it will be effective.
As well as the occurrence being specified and out of the control of the parties involved, there needs to have been prevention, hindrance or delay of the contract.
The court will also ask whether any reasonable steps could have been taken to avoid the events or mitigate the consequences. For example, if a chartered ship was not available to fulfil a contract, it would be reasonable to try and secure a replacement vessel.
If force majeure is successfully claimed, the result could be either suspension of the contract during the event or the right to end the contract straight away or after a notice period, depending on the provisions of the clause in the contract.
When a force majeure clause won’t be triggered
A force majeure clause cannot usually be relied on if the contract has simply become harder or more expensive to perform.
Similarly, where the event is not the sole effective cause of non-fulfilment of the contract, this will not be enough to trigger the clause.
If a contract does not contain a force majeure clause, it may be possible to rely on the common law of frustration in seeking to have a contract discharged because of an unforeseen event.
The law of frustration applies to contracts where the occurrence has made the contract physically or commercially impossible to perform or where the performance of the contract has been made radically different from what was contemplated at the time that it was made.
The courts will ask whether the event changed the circumstances to such an extent that the sole commercial purpose of the contract no longer exists.
In practice, proving frustration can be difficult.
If you believe that a contract you have entered into may be frustrated or the force majeure clause could be invoked it is important that you put together all possible evidence. This could include government notices, quarantine orders and other restrictive legislation plus paperwork demonstrating that the contract cannot be performed. You must also ensure that any notice provisions in the contract are strictly adhered to, or you may lose the right to rely on a force majeure clause.
You should also seek legal advice as soon as possible to deal with the matter before complications arise.
At RSW Law, we have wide experience of drafting and advising on commercial contracts. Our advice is practical and we always focus on our clients’ business interests and success. Our lawyers work in many areas, including financial services, retail, leisure, property and professional services.
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