Coronavirus & Force Majeure
Coronavirus (Covid 19) & Force Majeure – Can I and should I terminate?
Funding Action is seeing a significant rise in commercial disputes due to Coronavirus and the serious disruption it is causing to the ability of businesses (large and small) to carry out its obligations under commercial agreements.
Commercial tenants (including retail units) are failing to meet their rental payment obligations due to the detrimental impact of the virus on its ability to trade. This is the same for many other businesses whose trade is dependent on the provision of physical services and exchange of goods in person.
We are increasingly being approached by sophisticated businesses operating in many sectors including hospitality, entertainment and travel (to name just a few) whose important commercial agreements have been terminated by the other party under a “Force Majeure” Event. Their argument being that Coronavirus or Covid 19 represents an extraordinary unforeseeable event, which is outside of their control, and which has prevented them from fulfilling their contractual obligations.
We would always recommend seeking specialist legal advice because Force Majeure is generally not a concept or right implied by the English common law.
Whether a party is able to rely on a Force Majeure event to relieve itself of its obligations under its agreement in question will usually depend on the exact terms of the agreement and how the Force Majeure provisions within it, are specifically drafted.
Often global pandemics are included within the standard list of events constituting a Force Majeure event along with earthquakes, hurricanes and other natural disasters. However, whether the Coronavirus falls into the definition of a “pandemic” or “epidemic” at the time that a party seeks to rely on the Force Majeure event to trigger the termination of the agreement is an important consideration and may often require reference to specialist government publications.
A party’s decision to terminate an agreement due to Coronavirus is a very important and potentially incredibly costly decision to make. It may be a successful route to go down if a party has limited options and is prevented from fulfilling their contractual obligations. However, it comes with a significant degree of risk too.
A customer may reject the purported termination and claim that Coronavirus as a health issue is not a permitted “Force Majeure” event under the agreement and therefore the supplier has committed a repudiatory breach of contract; it could result in a successful claim for the customer and a costly one for the supplier in having to pay damages as compensation and legal costs.
Given the complex nature nowadays of international supply chains, a party’s decision to terminate an agreement under Force Majeure, is likely to have serious knock-on effects to other members of that supply chain and their respective abilities to meet their obligations with their own counter-parties.
A party should exercise caution when thinking about exercising termination rights under Force Majeure provisions in their commercial agreements. Expert legal advice should be taken and due regard had to the potential consequences of electing to terminate an agreement without proper legal justification.
We are supporting many businesses at the moment with litigation funding packages that are being used to fund a party’s legal costs required to bring a commercial claim against a counter-party to recover compensation.
We are increasingly seeing Coronavirus / Covid-19 playing a central role in the legal justification given by a party for its purported failure to meet its contractual obligations and the resulting termination of the agreement by that party.