Coronavirus (COVID-19) – Does it Excuse Performance of my Contract?
The UK Government believes that up to a fifth of the workforce may be off sick during the peak of a Coronavirus epidemic. It remains to be seen whether Coronavirus will affect that volume of people, but there are already clear signs of how it is disrupting the day-to-day operations of businesses in the UK and around the rest of the world.
For more information on how employers should be responding to Coronavirus, our employment and immigration team has produced guidance here.
From a more general trade and commerce perspective, companies incurring the greatest disruption will include those that rely on international supply chains with a presence in affected areas, those that sell to customers in affected areas and those that rely on people travelling in affected areas. However, with the measures taken to prevent the spread of Coronavirus becoming increasingly pervasive, it is likely that businesses without a direct trading connection to affected areas will also feel the impact.
Given the potentially far-reaching impact of the virus, many businesses are quite rightly starting to review their key commercial contracts to assess their risk exposure and to understand their rights and obligations in circumstances of delayed or failed performance. A key provision within those contracts will be that which excuses performance for events beyond a party's reasonable control. In the UK, we commonly adopt the French term – force majeure – to describe such events.
Because of its French law origins, the term force majeure has no recognised meaning in English or Scots law. The term should therefore only be used in a contract if it is properly defined. Whether or not Coronavirus (or the actions taken to prevent its spread) constitute a force majeure event that is capable of excusing performance will depend on how force majeure is defined in your contract and the facts and circumstances surrounding the delay or failure.
While identifying whether the event is, in fact, one of force majeure is necessary to understand whether performance is excused, it may not be the end of the story. It is common for a party less likely to rely on a force majeure clause (such as a customer) to expressly state in a contract that the other party (the supplier) cannot rely on a force majeure clause in respect of events that a reasonable supplier should have foreseen and for which provision should have been made. Requirements of this nature will not impact contracts that were put in place before Coronavirus became widespread, but it is pertinent to businesses that have agreed commercial agreements since the outbreak and that are currently negotiating contracts involving one or more parties whose performance could be affected.
If contingency plans for performing obligations under a contract are viable but not put in place, and a provision such as that described above is contained in a contract that has been agreed since the outbreak of Coronavirus, then Coronavirus will not excuse any delay or failure in performance.
Should you require any support or advice in relation to the issues set out in this article or commercial contracts more generally, please get in touch with Alison Rochester, Roddy Forgie or your usual Shepherd and Wedderburn contact.
For those looking for more information on these and related issues, our expert legal team has also recorded a dedicated Coronavirus webinar, which is available to view here (registration required).
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