Seamus Clifford at Ellisons Solicitors, explains how the Force Majeure clause in a commercial contract can help to ease some of the pressures which this unprecedented situation is causing, without incurring liability for non-performance
For many UK businesses, the coronavirus pandemic is impacting their ability to fulfil contractual obligations. Here, I explain how the Force Majeure clause in a commercial contract can help to ease some of the pressures which this unprecedented situation is causing, without incurring liability for non-performance.
What is the Force Majeure clause?
A Force Majeure clause is particularly useful in instances when a business is affected by an event which is beyond the firm’s control.
When used effectively, the impacted business avoids liability for being unable to perform the services specified in the terms of the contract. In a nutshell, the Force Majeure clause can suspend or terminate these obligations.
However, there isn’t a standard definition of the Force Majeure clause under English Law and it can differ depending on the contract.
Businesses looking to take advantage of the clause should pay particular attention at the specific wording and phrasing used. In the current climate, check for phrases such as pandemic, disease, epidemic, crisis or government action. Alternatively, it may also be sufficient if a contract refers to ‘events beyond a party’s reasonable control’.
Whether a party can rely on the Force Majeure clause depends on the circumstances, the party’s intention, the strength of evidence and again, the precise wording used in the contract.
The impact of the Force Majeure clause
Every contract is different and if a business is hoping to rely on the Force Majeure clause, particular attention should be paid to the wording used to describe a triggering event and the circumstances surrounding it.
For example, there is a difference between a clause which says a trigger event must strictly ‘prevent’ performance, and one which states that it must ‘hinder’ performance. The former will mean that it must be impossible for the company to perform the contract, whereas the latter describes a situation where it is more challenging, albeit still possible.
If the contract is suspended by the occurrence of a trigger event, it can either be re-activated once the trigger event concludes, or terminated if the trigger event is ongoing after a specific period of time. It’s important to bear in mind that whilst a trigger event is ongoing, the company affected will not be liable for the non-performance of contractual services, or any delay in work carried out.
How to rely on a Force Majeure clause
To enforce the Force Majeure clause, the non-performing party may need to provide written notice, detailing the reasons why the contract cannot be performed. This should be explicitly explained to ensure transparency between both parties. If the requirements to notify the other party are not accurately followed, the non-performing party may not be able to rely on the Force Majeure clause.
It’s recommended that before activating the Force Majeure clause, communication is executed as early as possible to allow both parties time to discuss and agree on any alternative ways of performing the contract.
The non-performing party must also prove that the contract cannot be performed for the reasons stated, that the trigger event falls within the relevant clause and that the failure to perform the contract was a result of that event.
If possible, the non-performing business should try to execute the contractual work as well as possible, and demonstrate the measures undertaken in order to do so. If the business is unable to fulfil the contract, it should explain the reasons why in order to limit any contractual breaches.
Parties receiving written warning of the trigger event, and subsequent non-performance could argue whether the Force Majeure clause applies and if an event was within the supplier’s reasonable control.
In case of litigation, it’s imperative that there is an accurate written record of any efforts made to prevent a potential breach of contract, details of the trigger event and any communication between the parties. It’s always advisable that both parties, where possible, negotiate a solution that satisfies both sides.
Other contractual clauses
Other contractual clauses, other than the Force Majeure, that businesses should pay attention to include:
- Notices: This clause should provide parties with the necessary instructions on communicating a notice period.
- Variation: This clause will provide parties with information about how the terms of the contract can be changed and how such changes should be communicated. In order for any amends to a contract’s terms to be valid, a written and signed letter of agreement (signed by both parties) is often required.
- Pricing: A pricing clause allows parties to increase prices due to unforeseen costs in order to perform the contract.
What to do in the absence of a written contract or Force Majeure clause
Whether or not there is a written contract or Force Majeure clause, there are circumstances whereby law the contract can be terminated completely, without an option to suspend. This can only be applied where performance has become impossible due to a significant change of circumstances resulting from an outside event, which is out of both parties’ control.
