Many businesses are currently looking for a way to suspend their contractual obligations at least until the virus runs its course.
Apart from having commercial discussions with the other party to the contract, businesses may achieve this by:
If an unprecedented event like the coronavirus significantly affects your ability to perform your obligations, you would want to know that your force majeure clause is well-drafted to provide you with relief when an emergency like this hits.
For example, the clause may define what constitutes a force majeure event, by listing out specific events. Depending on how the clause is drafted, it may be that only those events listed will allow a party to rely on the force majeure clause.
Alternatively, the clause may define a force majeure event in a general way with reference to examples. For instance, it may say that a force majeure event constitutes human acts such as war, strikes, machinery breakdowns, and natural disasters such as storms, earthquakes and floods. Where a clause gives examples, the effect is that those examples may 'guide' how the broader terminology (in this case "human acts" and "natural disasters") is to be construed. This may narrow the scope of what such a force majeure clause covers.
Finally, force majeure clauses may be drafted in more general terms with a more wide-ranging application. For example, the clause may say that neither party will be liable to the other if a party is prevented or delayed from performing its obligations "as a result of unforeseen circumstances beyond the party's control", or words to similar effect. The relevant question here may be as simple as – was the unforeseen event beyond a party's control?
In the context of the coronavirus, if your force majeure clause refers to specific circumstances such as "pandemic", or to "acts of Government" and "changes in law" (relevant to the recent social distancing measures for example), the coronavirus may fall within the scope of what constitutes a force majeure event under that clause.
The coronavirus may also fall within the scope of a force majeure clause drafted in more general terms, depending on its specific wording, and how the coronavirus impacted the party's ability to perform its obligations.
That is, the occurrence of the event must be the cause of the party being unable to perform its obligations.
This issue may require careful consideration as it is sometimes not entirely clear whether an inability to perform is a direct result of the relevant event. For example, if the coronavirus has impacted a party's cash flow which has in turn impacted a party's ability to perform its obligations (for example its payment obligations under a contract), rather than the coronavirus directly affecting a party's ability to perform, this may not be sufficient to establish the necessary causal link. It will of course depend on the specific circumstances.
It will also often require the party to continue using all reasonable endeavours to perform is obligations to the extent possible, notwithstanding the occurrence of the force majeure event.
Once the relevant force majeure event has ceased to impact the party, the party must generally resume performance of its obligations as soon as practicable.
It is very important that a party seeking to rely on a force majeure clause strictly follows the requirements set out in the contract, to ensure the party does not expose itself to liability when ceasing to perform its obligations.
This doctrine does however have quite a high bar.
For a party to avail itself of the doctrine of frustration, it will need to show that without the fault of either party, it has become impossible to perform the contract, or that the contract is now radically different from what the parties contemplated when they entered into it, as a result of an event or series of events outside of the parties' control.
Careful consideration and legal advice will be required to assess whether the specific circumstances may allow a party to rely on the doctrine of frustration, to be discharged from future performance under the contract.
If you would like advice on your commercial contracts, including if you wish to rely on a force majeure clause (or need to respond to another party relying on such a clause) in the context of the coronavirus or otherwise, please don't hesitate to contact us – we would be pleased to help.