The coronavirus pandemic has closed businesses across the world and put huge pressure on supply chains and the contracts which underpin them.
But are there steps you can take to protect your business if the pandemic means you are no longer able to fulfil contractual obligations?
Modern Law Awards Lawyer of the Year Charlotte Clode, a Partner with FBC Manby Bowdler, says companies should now be considering whether they can call Force Majeure (FM) as a result of the exceptional circumstances.
Here Charlotte provides some answers to commonly asked questions about FM and how it might help your business.
Q: What is Force Majeure?
Under FM one party to a contract can be excused from meeting their obligations if they become impossible or impracticable because of new circumstances which could not have been reasonably anticipated or controlled.
Q: How can I use Force Majeure?
The concept of FM does not exist in English law and so is purely contractual. To make use of FM, the party calling it will need to refer back to the terms of the original contract and prove that the new exceptional circumstances fall within the FM clause.
If there is no FM clause in the contract, it will be difficult to invoke because FM cannot be implied, but must be specifically stated. Whether the contract has been frustrated should be considered instead.
Q: What do I need to prove?
If you are relying on FM you will need to show that the event – in this case the coronavirus pandemic – is preventing or delaying you from meeting the terms of the contract through circumstances outside your control.
Typically you will also need to show that you have done everything reasonable to avoid or mitigate the pandemic or its consequences.
Q: Does the word pandemic have to be in the FM clause in the original contract?
English courts interpret FM clauses quite strictly so the precise wording is important. If reference is not made to a pandemic, it might be possible to invoke an ‘Act of God’ clause but this is by no means certain. There has been no case law to date to offer firm guidance in this respect.
Q: How should I declare Force Majeure?
How is FM declared?
The FM clause in the original contract should detail the way in which FM should be invoked and the notice period required. It might also give details of the evidence required to support invoking the clause. If it does neither, then a reasonable amount of notice must be provided and clear evidence obtained in any event.