A guide for overseas businesses in determining whether COVID-19 triggers force majeure under their English law contracts.
As expected we are seeing an increasing number of queries regarding the circumstances in which COVID-19 may amount to a force majeure event. In particular, our international clients have sought clarification as to how the principle and application of force majeure under English law differs from other jurisdictions.
This article provides a summary of those differences and further clarity as to whether the effects of COVID-19 may trigger force majeure under contracts governed by English law.
The principle of force majeure
In the UK and various overseas jurisdictions the principle of force majeure is recognised as the occurrence of events that are outside of a parties’ control. The effect that such force majeure events may have on a party’s contractual obligations under a commercial agreement will vary depending upon the law governing that commercial agreement.
Force majeure in foreign jurisdictions
In many overseas jurisdictions the principle of force majeure is codified in state legislation and therefore applies to commercial agreements by default. For example, force majeure events are expressly stipulated in the French Civil Code and such events apply to commercial agreements if certain cumulative conditions are fulfilled.
Interestingly, President Macron recently announced that the cumulative conditions required for COVID-19 to qualify as a force majeure event under French law would likely be met for commercial agreements entered into before 2020.
Taking another example, in Spain, the principle of force majeure has developed through Spanish common law and Article 1105 of the Spanish Civil Code augments the common law force majeure position by expressly stipulating that “…nobody will be held liable for those events that could not have been foreseen, or that, foreseen, were inevitable.”
Force majeure under English law
Unlike in some other European jurisdictions, the term force majeure has no established meaning or consequences under English law. In order for force majeure to apply, there must be an express force majeure clause in the relevant agreement, including a definition of what constitutes a force majeure event. A similar approach has also been adopted under German law.
Therefore, properly drafted commercial agreements that are subject to English law typically contain express force majeure clauses.
It is usual in the market for commercial agreements to broadly define force majeure events as events that are beyond a party’s reasonable control. However, exactly what constitutes a force majeure event will change from one agreement to the next.
Therefore, whether COVID-19 triggers a force majeure event depends upon both:
- the express wording of the force majeure clause in the relevant agreement; and
- the impact that COVID-19 has on a party’s ability to comply with its contractual obligations under the relevant agreement.
The doctrine of frustration under English law
If an agreement does not contain an express force majeure clause then it may be possible that COVID-19 triggers the common law doctrine of frustration. If COVID-19 triggers the doctrine of frustration then the relevant agreement will be brought to an end and the parties will be excused from their future obligations.
Frustration applies when something (e.g. COVID-19) occurs following the formation of an agreement which renders it physically or commercially impossible to fulfil the agreement, or transforms a party’s obligation to perform into a radically different obligation from that undertaken at the time the agreement was entered into.
Events previously held to be frustrating events in English case law include, a subsequent change in the law that makes performance illegal and an unexpected event that causes an unexpected delay in performance. Therefore, whether COVID-19 (or events resulting from COVID-19) would be deemed to frustrate an agreement requires an examination of the facts surrounding the relevant agreement on a case by case basis.
However, claiming frustration is often difficult and complex and, therefore, is usually avoided where an agreement contains an express force majeure clause.
International businesses trading in the UK should check whether their English law contracts contain an express force majeure clause and, if so, whether that force majeure clause is drafted widely enough to include events that may arise as a result of COVID-19.
If you have any queries or concerns regarding the interpretation of a force majeure clause then please do get in touch. Our Commercial and Litigation Teams have vast experience in advising international businesses on the interpretation of force majeure clauses, particularly in respect of recent COVID-19 related events, and will be on hand to provide any further guidance you require.
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