Contracts in a Time of Coronavirus – Force Majeure and Frustration

From construction contracts to holiday bookings and tickets to performance events, the range of contracts likely to be affected by the spread of COVID-19 or ‘Coronavirus’ will most probably be enormous.

With the confirmation on 11 March 2020 from the World Health Organization (WHO) of the status of Coronavirus as a ‘Pandemic’, the WHO further announced on 13 March 2020 that Europe is now the epicenter of the new pandemic.

Measures used by Governments across the world to control the spread of the disease have involved both self-isolation and forced quarantine, the economic impact of which is certain to be significant. In particular, businesses and individuals across the world are beginning to feel the pinch of others not being able to perform upon contracts for the supply of goods and/or services.

As early as 27 February 2020, the Chinese Central Government took steps to protect businesses by issuing force majeure certificates, in an effort to provide a legal right for Chinese exporters to break contracts without penalty in light of the impact of the Coronavirus.

What happens when a contract cannot be fulfilled because of Coronavirus?

Where, as is increasingly the case, a party is unable to complete a contract for the supply of goods and/or services solely on the basis of the impact of the Coronavirus, there are two main potential routes for discharging the contract, namely:

1.Discharge by force majeure; and

2.Discharge by frustration.

Force Majeure and English Contract Law

Under English Law, the concept of ‘force majeure’ does not exist in itself, and thus any attempt to rely on an alleged entitlement to discharge a contract on this ground must be routed in an express provision within the contract.

Where a contract includes a force majeure clause, this will usually provide that, where a certain event takes place which is beyond the control of both of the parties, each party will be entitled either to discharge the contract and be excused from performance, and/or to suspend and extend the time for performance.

Because there is no general doctrine of force majeure, the Law is clear that no term will be implied into a contract which does not contain an express provision to this effect. Equally, the precise wording of the term is vital to establishing whether the clause will apply to an event, and what constitutes a force majeure, an ‘Act of God’, or a ‘vis major’ will often be expressly qualified.

Where a party seeks to rely on force majeure, it will often be required to prove that the impact of the event has prohibited (or severely hindered) their ability to perform the contract. This is often a question of fact and degree, and parties will need to consider carefully whether performance has been prevented, or just simply made more expensive, which in itself may not be enough to discharge the contract.

The Doctrine of Frustration of Contract

In the event that a contract does not include an express force majeure clause, a party may be able to discharge the contract using the doctrine of Frustration.

A contract may be frustrated by the Coronavirus pandemic where it becomes impossible to perform, or where, as a consequence of Coronavirus, a party’s contractual obligations become radically different to what was envisaged at the outset. If a contract is frustrated, the contract will immediately be terminated, and both parties released from performance.

How can Ellis Jones help you?

Where money has been paid under a contract prior to either the invoking of force majeure, or frustration of the contract, careful consideration will need to be given as to whether any payments made prior to the frustrating event can be recovered.

If you have been contracted to provide goods and/or services and are unable to complete your side of the contract due to events outside of your control, or alternately if you have made a payment under a contract and the other party has failed to complete their side, contact our Commercial Disputes team by calling 01202 525333 or emailing Conor.Maher@ellisjones.co.uk to discuss your case and how we may be able to assist you.