Dispute Resolution (work life)

Coronavirus: questions relating to contracts

Before you take any action with regard to a contract you are worried about, you should make sure you have researched all the support that the Government has made available.  There are a range of schemes in place to help people and businesses who have been financially adversely affected by Coronavirus. Find out more about the government support here. 

What is Force Majeure and does COVID-19 qualify?

Force Majeure refers to a clause that can be found in many legal contracts. The clause can suspend or extend time for performance of obligations under a contract, if you are unable to fulfil it, as a result of an unusual event that was not foreseen at the time of making the contract, and is beyond your control. The wording of each contract will differ but such events will usually include (but will not be limited to) a natural disaster, an epidemic or an act of terrorism. 

If the wording of the contract provides for an ‘epidemic’ to trigger the clause then COVID-19 will qualify. Otherwise a catch-all provision such as ‘events outside the reasonable control of the party affected’ is likely to be able to be applied to COVID-19. 

If you do not have a written contract or your written contract does not contain express Force Majeure provisions you may be able to rely on ‘Frustration’. Frustration will apply if COVID-19 has made it impossible for the parties to physically or commercially fulfil the contract. The effect of Frustration is that it will bring the contract to an end and therefore getting that clause to apply can be more difficult to satisfy than Force Majeure provisions, because it is more final.

Can I use force majeure to get out of my contract?

This will depend on the wording of the contract and the obligations to be performed so it’s important to get legal advice.  The consideration will be with regard to what impact the event has had on performance of the contract. That is whether the unusual event must absolutely prevent performance or whether in fact, the hindrance to the contract that the event causes, is enough to trigger the provisions.  It may be that the time period for performance can be extended or suspended, rather than the contract being terminated because performance cannot be achieved at all.  

You cannot simply rely on such an event to discharge all of your obligations under the contract. You are still under an obligation to try to avoid or mitigate the effects of the event and for the force majeure clause to apply, there must be no alternative solution to performing your obligations. 

As COVID-19 is having such a global impact it may be difficult to mitigate its effects. However, it will still be important to consider all reasonable steps that may be taken to continue to meet your obligations under the contract, whilst at the same time following guidelines and Government instructions. 

It’s important to remember that you must consider the notice requirements and time limits under the contract, to properly inform the other contracting party as to the difficulties you face. If you do not do this, you may lose your right to rely on the protection of such a provision. 

If you need help with your contracts, talk to us today

Does COVID-19 qualify as an act of god?

Check what your contract says because the contract itself may define what constitutes an ‘Act of God’. Therefore it will depend on whether an epidemic or pandemic is included within such a definition. The definition may also make a distinction between whether naturally occurring events or government actions in response to or in anticipation of, the main event, do also constitute an Act of God. 

An Act of God is usually drafted into a contract as a ‘catch all’ provision. However, previous major events such as exceptional storms and changes in economic markets have not been determined to be ‘Acts of God’. It is too early to tell how the courts will apply such provisions to COVID-19. 

If you have any concerns about a legal contract which obliges you to fulfil an obligation which you feel you cannot do due to the Coronavirus outbreak, make certain to seek specialist legal advice before you make any decisions.

Does Covid-19 allow a building contractor to apply for an extension of time?

With Government ministers appearing to say that construction sites are safe to continue in operation, despite the recent lockdown order, contractors find themselves in an awkward position. If they are negatively impacted by the Coronavirus crisis in terms of working on the site, they may not be able to complete contracts on time and the employer of the contractors could be without a completed building in the timescale needed. The key question will then be whether contractors can obtain an extension of time under their contract. 

The standard forms of contract (e.g. JCT, NEC, FIDIC) all have mechanisms for obtaining an extension of time, if you follow the provisions in the contract. The most important element to most of the standard contracts is giving notice to the employer. 

For example, under the JCT DB (2016 edition), the contractor must give notice to the employer of the delay, the reason for it and the expected length of continued delay. Force majeure – a major, unexpected event with wide ranging effects and consequences, as explained above – is a ‘relevant event’ under the contract. If the employer accepts that Covid-19 is a ‘relevant event’, it must give a fair and reasonable extension of time. 

Of course, it may be hard to know what a fair and reasonable time is in these circumstances and, given the mixed messages from Government, there may be some scope for argument as to whether Covid-19 in itself is a Relevant Event. It might therefore be best for contractors to include references to the expected (and real) shortage of labour due to self-isolation and practical issues with implementing social distancing on site, in addition to simply citing Covid-19 as a blanket reason. 

If all else fails, many of the standard contracts have a provision for termination after a period of suspension or it may be possible to argue that a contract has been frustrated as the object of the contract can no longer be performed. 

To clarify your position, read the terms of your contract carefully and you may need legal advice. If there is no formal contract, you should most definitely consult a legal specialist as a matter of urgency to clarify your position.

Tees coronavirus update

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