COVID-19: A Force Majeure Event
Published: 24 March 2020
The current COVID-19 outbreak is causing major disruption to individuals and businesses. As such, attention will inevitably turn to the contractual arrangements an individual or business may have in place, for example those agreements with landlords, employees, suppliers and customers. Parties may need to seek legal advice on how to deal with any disputes that arise from these issues.
Contractual obligations may fail to be performed for several different reasons. However, given that COVID-19 is a virus passed on from person to person, the most obvious example is a failure to comply with a contractual obligation because a party cannot, because of protective measures, perform the services that they are contracted to carry out. For example, the business that cannot service its’ customers as a result of the Jersey Government guidance, which means it cannot service its’ loan repayments or rental agreement.
What are the implications?
The legal effects of the pandemic will differ depending on the reason for the failure or breach of a contractual obligation whether or not the parties have explicitly foreseen this type of event and made provision for that type of risk in their contract and which governing law is applicable to the relevant contract. The governing law clause in a written contract stipulates which legal jurisdiction any claims for breach of contract should be brought. Accordingly, it will always be the starting point for a party considering their obligations under a contract because the law of the relevant jurisdiction will determine the interpretation of that contract.
Jersey law has the strict concept of la convention fait la loi des parties which loosely translates as ‘the agreement makes the law between the parties’. This concept, with very few exceptions, restricts the terms of a contract to the terms of the document (or verbal agreement) and restricts implied terms being inserted.
Accordingly, claims should first be considered in the light of the terms of the contract, including clauses that refer to a change in law, termination or force majeure (if there is one). However, as an exception, and you will note from the below, a Court may imply a force majeure clause in contractual relations.
Under Jersey law, much like UK law, there is no definition prescribed by statute. Accordingly, parties will have to look to the wording of the force majeure clause in their contract. Contracts may list natural disasters e.g. fire, riots and other cases of civil unrest, acts of war and terrorism.
Those concerned that they may be in breach of a contract obligation because of the effects of COVID-19 need to identify whether their contract contains a force majeure clause and if it does to consider whether there is an exhaustive list of ‘forces’ or in fact a definition at all. Such clauses vary on a “case by case basis”. Generally, a clause seeks to excuse a breach of contract and also suspends an obligation to perform whilst a certain force majeure event continues.
Whilst it is difficult to predict the scale, length and effect of the COVID-19 pandemic in any given country or sector; it is important to note that obligations made illegal or impossible are only likely to be relevant. It is unlikely that contractual obligations which are made more expensive or onerous to perform will be caught by a force majeure provision.
Where there is no force majeure clause in the contract
In the Hotel de France v CIB (1995) case, the Chartered Institute of Bankers (the “Institute”) entered into a contract with the hotel to use a particular room in the hotel in which to hold their dinner. However, a fire at the hotel meant that it was not possible to use that room for the function. Other rooms were available, but the court decided that use of the selected room was a fundamental term of the contract. Whilst the contract did not contain an express force majeure clause, the performance of a contract was interpreted by the court as one that was impacted by a force majeure event. The court’s approach was to allow the Institute to treat the contract as at an end: either because of a fundamental breach (failure to provide the specific room) or because of force majeure.
Accordingly, even without an express force majeure clause in the contract, there may be scope in arguing an unforeseeable event (much like the fire in the Hotel de France case), i.e. that the protective measures put in place because of COVID-19 present a set of circumstances that make it impossible for a party to deliver up or perform that which it has contracted to do.
Therefore, there is authority under Jersey law for finding force majeure even in the absence of a written provision in a contract to this effect. However, the Jersey authorities in this area of law are limited and there has not been any recent cases which suggest how the court would approach such a situation in 2020.
Force Majeure Clause and Steps to Consider
- Review the wording of force majeure clauses. Pay particular attention to the list of non-exhaustive events which are included, and the consequences of triggering a force majeure clause. If a long list of force majeure events is included, it is likely to be helpful (where you are seeking to rely on the clause) if pertinent wording is included such as “pandemic”, “disease” or “crisis”. Also be sure to watch out for wording in new contracts that require that the event of force majeure is “unforeseeable”.
- Follow any stipulated notification procedure. The force majeure clause is likely to require delivery of a notice to the other party stating the party delivering the notice considers the clause has been triggered.
Other Steps to Consider
- Prescription period. This refers to the time within which a claim can be brought. If you are considering a potential claim, it is essential to check the prescription period and formalities for filing and serving documents. If no prescription period is set out in the contract, Jersey law limits the length of time to bring a claim to 10 years.
If you need any further advice regarding a potential contract dispute, please do not hesitate to contact: firstname.lastname@example.org
At Viberts we are here with you every step of the way.