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Will Coronavirus affect my Business Contracts?
With the expected growth in cases of Coronavirus, there cannot be anyone who is not aware of the potential impact of Covid-19 on humanity. Shelley Bonney, a Company Commercial Solicitor at WSP Solicitors, breaks down the impact the pandemic could have on businesses and any contracts they have in place.
The impact of the Coronavirus outbreak on many areas of trade and commerce is causing significant disruption.
Airlines are already talking about struggling to survive, holidays and events are being cancelled, and cafes, restaurants and bars are empty. The global economy is taking a hit and so too will local businesses.
Already, companies are beginning to put plans in place to help them through the turbulent weeks and months ahead. Many employees will be working from home, sickness levels among staff will likely increase, and increased levels of flexibility on all sides will be required.
But what does this mean for your business and what can you do to minimise the impact on you and your staff?
Some businesses may seek to assert that the pandemic constitutes a “force majeure” event that gives them a valid basis to excuse non-performance under the terms of a commercial contract.
So what is a “force majeure” event?
A force majeure event is one which is outside of either or both parties’ control. These may be defined as “acts of God”, being natural disasters, such as flood or drought, or acts of man, such as a terrorist attack or civil war.
A well drafted force majeure clause will typically excuse one or both parties from the performance of a commercial agreement in some way following the occurrence of a force majeure event.
If the force majeure clause is enforced, then the party is excused from, or is entitled to suspend performance of, all or part of its obligations. That party will not be liable for its failure to perform the obligations, in accordance with the clause.
As the term force majeure has no established meaning or consequences in English law, in order to apply this concept to a commercial agreement, there must be a specific force majeure clause included in the contract, including a definition of what constitutes a force majeure event.
Exactly what constitutes a force majeure event will vary from one agreement to another.
If your contract has an epidemic or pandemic defined as a force majeure event, then on the face of it the Coronavirus could constitute a force majeure event.
However, it is not possible to say if the Coronavirus would constitute a force majeure event for a specific contract, using a standard force majeure clause, that does not specifically refer to an epidemic or pandemic.
This would depend on other relevant factors, such as:
- Whether the Coronavirus has hindered performance of the agreement or made it impossible.
- Whether such an outbreak was foreseeable at the time the agreement was made, what the rest of the agreement says and the facts and context surrounding the agreement and the parties.
- Other relevant considerations including whether there were any reasonable steps the party seeking to rely on the clause could have taken to avoid the effects of the force majeure event, and whether it complied with the notice (and any other) requirements of the clause.
It is worth bearing in mind that the courts generally interpret force majeure clauses strictly. They may, for instance, distinguish between a force majeure event that ‘prevents’ performance altogether and one that merely ‘hinders’ it.
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