Is coronavirus a force majeure event?

Force majeure provisions offer relief from performing contractual obligations.

By STEPHEN WRIGHT/ADAM KELLY/DAVID BOOTH
A sign is seen down a London street regarding self isolation as the spread of the coronavirus disease (COVID-19) continues. London, Britain March 21, 2020 (photo credit: HANNAH MCKAY/ REUTERS)
A sign is seen down a London street regarding self isolation as the spread of the coronavirus disease (COVID-19) continues. London, Britain March 21, 2020
(photo credit: HANNAH MCKAY/ REUTERS)
The coronavirus outbreak is hitting businesses worldwide. Businesses are having difficulties fulfilling contractual obligations and need to understand their rights in such situations. There is often a force majeure clause for circumstances beyond the business's control but there are issues to consider before invoking a force majeure clause.
These FAQ explain what force majeure provisions are, how they work, and whether coronavirus is a force majeure event. This guidance covers force majeure mainly in the UK, but many international contracts are governed by the law of England and Wales.
What is a force majeure provision?
Force majeure provisions offer relief from performing contractual obligations. They usually apply when specified events occur beyond the control of the party that prevents them from performing some or all of the contract.
If a contract is silent on force majeure, English law will not imply it into the contract. Undefined references to force majeure in English law, without contractual interpretation, will not have an implied definition at law.
Some other (often civil-law) legal systems are different, where force majeure is a legally defined concept and courts may declare that an event, such as coronavirus, is a force majeure event. Force majeure is typically not a feature in property leases.
When can I rely on force majeure?
Generally, a force majeure event prevents or delays (to the standard required) your ability to perform contractual obligations.  If the contract does have a force majeure provision, the interpretation of it is fact-specific and contract-specific, so it’s important to get legal advice early. If the contract doesn’t have a force majeure provision, you can’t rely on force majeure. It is highly unlikely you’d be able to rely on a force majeure provision simply because performance is more expensive, difficult or commercially undesirable.
Where part but not all the  contract is affected by a force majeure event, you and the other party should (unless the relevant provisions provide otherwise) continue to perform the unaffected part of the contract (including making payment of relevant charges), because, from a legal perspective, that unaffected part of the contract will continue to operate in full force.
What else must I consider when interpreting my force majeure provision?
All force majeure provisions must be considered and interpreted by reference to other related provisions in the contract such as the interpretation provision. “Force Majeure” definitions in contracts often contain examples of applicable events. These must be reviewed to establish:
whether words like “including” or “for example” mean that the list should be read as exhaustive or non-exhaustive; and
whether examples are intended to limit the list or not – for example, depending on the interpretation provision, an “act of god” will probably include COVID-19, but the same phrase followed by examples that relate to meteorological events may not.
Is coronavirus a force majeure event?
The language of a force majeure provision typically identifies the circumstances in which the provision applies. These are usually set out in a list of “force majeure events.” That  can be  specific or more general, but typically are all things beyond the reasonable control of the affected party.
Subject to the guidance above on interpretation:
lists that include “epidemic” and/or “pandemic” will likely cover COVID-19;
other circumstances such as “acts of government,” “acts of god,” “acts of nature” and “civil emergency” may cover coronavirus
Events stated to be “beyond a party’s reasonable control” are also likely to cover COVID-19.
However, none of these points have been tested in the courts.
Even if COVID-19 is within the scope of your force majeure provision, before claiming force majeure you must consider the impact of coronavirus on your ability to perform your contract  and whether that impact meets the standard required by the provision.
Is fault relevant to force majeure?
Unless the force majeure provisions in the contract provide otherwise, if there is fault attributable to a party, this suggests that the circumstances are not beyond the reasonable control of that party and force majeure is not relevant.
Does mitigation apply to force majeure?
Force majeure provisions often require the party seeking relief to demonstrate they have mitigated any impact.
Be aware that in many (but not all) cases, English law implies a provision into contracts obliging a party suffering loss to mitigate that loss.
How does business continuity and disaster recovery relate to force majeure?
Often, a well-drafted force majeure provision will stop a party relying on it, if that party did not operate the business continuity/disaster recovery provisions of the relevant contract.
Where a force majeure provision is silent on this matter, the extent to which a party did not operate the business continuity/disaster recovery provisions of the relevant contract are likely to be considered as part of mitigation.
So, in summary, what's required to rely on force majeure?
Each force majeure provision is worded differently, but you’ll need to show that:
the force majeure event is within the scope of the provision;
non-performance or delayed performance was caused by the force majeure event/events outside your control you’ve attempted to mitigate the effects of the force majeure event.
Can force majeure help exclude or delay making payment?
Unless the banking system collapses, or some other force majeure event happens that prevents payment, it’s unlikely that you’d be able to rely on force majeure to excuse  making payments under a contract..
That doesn’t mean you’d need to pay for goods or services you don’t receive due to a supplier being affected by a force majeure event – that would be highly unlikely under English law. But you’d be wise to make suspension of relevant payment obligations clear in any force majeure provisions, including entitlement to refunds or credits for advance payments.
Force majeure is a remedy that benefits suppliers, who are responsible for most obligations related to performance, rather than customers, whose obligation largely to payment.
If the force majeure event affects only parts of the contract, then a customer will be required to pay for unaffected goods or services.
What happens to the contract when I invoke the force majeure provision?
This depends on the provision's language. Typically, the affected party is excused performing affected obligations under the contract. However, provisions typically allow the unaffected party to terminate only after a specified period.
Exercise caution and take advice before invoking a force majeure provision: doing so where there’s no force majeure event (as defined in the contract) may entitle the other party to claim the contract has been breached, terminate it and claim for damages.
Sometimes, force majeure provisions are drafted to give termination rights to both unaffected and affected parties.
When can I terminate under a force majeure provision?
Termination rights are usually triggered (usually for one party, but sometimes for both) only where the force majeure event persists for a specified period of time, and only after this period may the party terminate the contract. A party seeking to invoke force majeure to terminate the contract should strictly follow the provision’s notice requirements; failing to do so could render the termination ineffective.
Is force majeure my only possible remedy?
No. To assess available options, a review of relevant facts and contractual provisions should be conducted. Other clauses may be relevant – or even more relevant – than force majeure.
Other contractual provisions that could be relevant when force majeure is being considered: business continuity and disaster recovery; customer responsibilities and dependencies, relief events and excusing causes; changes in law; material adverse change; financial distress; termination, etc.
Affected parties should consider non-contractual remedies, including the frustration doctrine.
What's frustration doctrine?
If a contract doesn’t have a force majeure provision that deals with the event, an affected party should consider whether they have a potential remedy under the common-law frustration doctrine.. For frustration to apply, an unforeseen event must happen that is neither party’s fault but that makes the performance of the contract impossible or radically changes the nature of the contract from what was intended. If proved, the remedies are similar to force majeure relief – but frustration is very difficult to prove.
If a contract has force majeure provisions that deal with the event, frustration is unlikely to apply.
The Writers are lawyers at global law firm DLA PIPER UK (Manchester and Liverpool offices), specializing in commercial law and focusing, among other sectors, on technology, distribution and manufacturing agreements.