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Covid-19 and contracts

For many businesses, either at the receiving end of a failure to supply or who have desperately wanted to fulfil their contractual obligations but have been unable to, Covid-19 has put them in difficulty, contractually.

As a supplier, you might think it is ok because you have a ‘force majeure clause’ in your contract which will protect you. It might not.

A force majeure clause can be relied upon by a contractual party when an extraordinary event or circumstance arises (outside of their control) which prevents one or all parties from fulfilling their contractual obligations, to relieve the parties of liabilities.

The effect of the clause will depend upon the wording used. Force majeure clauses typically take an approach of listing events that constitute a force majeure or a broad description of the type of event (e.g. an act of god), or a combination of both approaches.

If a party seeks to rely upon a force majeure clause and a dispute ensues a court will look at the wording of the clause. If the force majeure clause says that there must be an act of god for the force majeure clause ‘benefit’ to apply, it is unlikely that a contractual party will be able to avoid their liability under a contract for any other reason.

A party seeking to rely on a force majeure clause must show that the force majeure event caused the inability to perform/ delayed performance; that the non/ delayed performance was because of circumstances outside of their control and that they could not have avoided the event or its consequences.

It is advisable for parties struggling to perform under a contract to look at alternatives or back-ups to show that they have ‘mitigated’ their losses.

So, what about Covid-19- can I rely on that as a force majeure event? You need to look at the wording of the clause. If the clause provides for pandemics, it is more likely. If the clause does not mention pandemics, it is less likely. The best tip is to write exactly in the contract what you want the force majeure clause to apply to. Be as specific as possible.

For advice on disputes or contracts, contact Becky Draper at SHU Law on 0114 225 6666.


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