On 5 November 2020, England entered its second lockdown, and the disruptions to bookings and contracts continue. If you’re considering cancelling contracts, can you use force majeure?
In April 2020 we published an article explaining the importance of ensuring Terms & Conditions are drafted with sufficient detail to allow them to be relied upon in the event a party is not able to perform all or some of its duties under the contract. This article provides an update considering the current second wave of Coronavirus being experienced across the UK.
Note that this article focusses on commercial (B2B) contracts. You can read about cancelling consumer contracts here.
Force Majeure – a contractual remedy to breach of contract
A contract which is governed by the laws of England and Wales requires that the party seeking to exclude or limit its obligations under the contract must rely upon the contractual terms agreed upon between the parties. This can take the form of a specific exclusion clause or, more commonly, a force majeure clause.
Typically, force majeure clauses will allow for parties to terminate their contract in situations where one party has been prevented from performing their contractual obligations due to circumstances out of their control.
It is important that any force majeure clause is drafted with sufficient detail to enable it to be relied upon. Equally, it is important to not be drafted so narrowly as to restrict its use to the point of being ineffective.
The common points to be aware of in order to rely upon a force majeure clause, in particular during this second wave are:
- List of events which will (or will not) be considered to trigger the force majeure clause – is Covid-19 specified or is there a general reference to ‘pandemics’? Does the clause limit the event to a single occurrence?
- Impact on business – are there specifications as to how the ‘event’ must impact the business before any relief can be sought?
- Notice – what form of notice is required generally under the contract? Are there different requirements for force majeure events?
- Mitigation – could the business have put into place any mechanisms to avoid or reduce the impact of the event on the business so as to allow to continue performance under the contract?
- Foreseeability – is there express provision within the clause which excludes foreseeable events?
For a more in depth look at force majeure clauses, please see Simon Morris’ article.
No force majeure clause? Is the contract ‘frustrated’?
The doctrine of frustration allows for contracts to be brought to an end under specific circumstances without any liability for breach of contract. This doctrine will only apply in the absence of a contractual remedy, for example, in instances where there is no force majeure clause or where the force majeure is too widely drafted to be relied upon.
There is a high burden to proving a contract has been frustrated and it should only be relied upon as a ‘last resort’.
In order for a contract to be considered ‘frustrated’, the following broad terms need to be satisfied;
- The frustrating event occurred after the contract had been formed;
- The frustrating event was not the fault of either party to the contract;
- The frustrating event was beyond the contemplation of the parties at the time the contract was entered into; and
- The frustrating event made the performance of future obligations under the contract impossible, illegal or radically different.
For a more detailed discussion on the doctrine of frustration please see our article on the consequences of a frustrating event.
Foreseeability, mitigation and the second wave
A party wishing to rely upon force majeure or frustration will need to demonstrate they have taken sufficient steps to mitigate any potential business impact. Coronavirus and its effects are widely known and reported on.
It will therefore be likely that parties will be required to demonstrate that despite the measures in place following the first lockdown in March, the current business impact was neither foreseen, nor could it have been reasonably mitigated against. This may prove to be too high a hurdle to overcome for many.