The impact of the Covid-19 pandemic on civil litigation in the UK has been significant.
As a result of the national lockdowns imposed, the Courts have had to adopt more flexible procedures such as allowing hearings to take place remotely by telephone or video-link and giving parties the freedom to extend certain procedural deadlines by agreement.
The aftermath of the pandemic will undoubtedly lead to a huge wave of litigation between parties, especially in relation to the performance of commercial and consumer contracts, as companies and individuals increasingly find themselves in the position that they are either unable or unwilling to fulfil their contractual obligations.
As a consequence, contracting parties will inevitably seek to rely on any force majeure clause contained in a commercial contract in order to excuse performance or avoid their responsibilities.
What Is A Force Majeure Clause?
The purpose of a force majeure clause is to excuse a party from performing its contractual obligations following the occurrence of certain events outside the party’s control, such as an Act of God.
By relying on such a clause, the party will not be liable for its failure to perform its contractual obligations.
Force majeure clauses in contracts are usually suspensory, meaning that a party’s contractual obligations do not go away entirely but are merely suspended while the force majeure event continues. Once the force majeure clause is triggered, a party's liability for non-performance or delay in performance is excused for as long as the force majeure event continues. In some cases, particularly where the performance of the contract becomes commercially unfeasible, a party is able to serve notice terminating the contract after a specified period of time has passed.
A force majeure clause can often exclude foreseeable as well as foreseen events. It will probably be argued that the current Covid-19 pandemic in the UK was not foreseeable or likely to have been foreseen before the first outbreaks of coronavirus were reported in China. Although it is fair to say that as a result of the current pandemic, it is very likely that new force majeure clauses will be drafted so as to cover any future pandemics.
Whether parties can rely on any existing force majeure clauses to avoid completing their contractual obligations in the current climate will in large part depend on the attitude of the Courts, who have traditionally interpreted force majeure clauses restrictively, and also on the intention of the contracting parties at the time the contract was entered into.
It is important to remember that a party seeking to rely on a force majeure clause will bear the burden of proof in establishing that the events in question fall within the scope of the clause.
The non-performance must be due to circumstances both beyond the control of the party and for which the party had not assumed responsibility. Finally, there must have been no reasonable steps which could have been taken to avoid or mitigate the event in question or its consequences.
Compliance with UK government guidance following the outbreak of the current pandemic is therefore likely to be relevant in determining whether or not a force majeure clause can be relied upon. For instance, if a commercial contract contains a performance date that falls during a time when government guidance is in place, then a party may not be able to rely on any applicable force majeure clause if it has not complied with such guidance.
Common Law Doctrine Of Frustration
What is the position if a commercial contract does not include a force majeure clause, but a party nevertheless wishes to argue that it is unable to perform its contractual obligations as a result of the pandemic? In such circumstances, a party could rely on the common law doctrine of frustration. Unlike force majeure clauses which temporarily suspend the performance of a contract, frustration has the effect of discharging a contract entirely, meaning that all rights and obligations under the contract are cancelled.
In order to rely on frustration, a party will need to establish that there has been a change in circumstances that has made it impossible to perform the commercial contract or make performance radically different from that which was originally intended by the parties.
This is a high evidential hurdle to overcome and it remains to be seen if the widespread disruption caused by the pandemic will constitute a sufficient change in circumstances to render the performance of a commercial contract either impossible or radically different. The Courts are likely to treat each case on its own merits and much will depend on the specific factual nature of the arguments deployed.
All of this could affect anyone from an individual consumer who has entered into a contract with a trader for services to be provided but finds that the particular service cannot be provided on time, to multi-national corporates who have entered into lucrative and high-value construction contracts which have been delayed and disrupted through no fault of their own.
If you are a party to a commercial contract and have been affected by the above, then please do not hesitate to get in contact with us to discuss your options.
At Monan Gozzett, we continue to provide our full range of dispute resolution services to all of our individual and corporate clients throughout these unprecedented times.
Samuel Manok-Sanoian is a Senior Associate in Monan Gozzett’s Commercial Dispute Resolution team and has extensive experience of litigating a wide range of disputes both domestically and abroad. He has particular expertise in civil fraud matters and acts for a broad range of clients including high-net worth individuals and multi-national corporates.