Coronavirus: Tees Law answer your legal questions on contracts
In these difficult times many people will have questions and concerns around the effects of the outbreak of coronavirus on businesses and commercial relationships and what impact all this will have on our children's education.
In their latest Covid-19 Q&A, Tees' expert solicitors answer your legal questions regarding contracts...
What is Force Majeure and does Covid-19 qualify?
Many legal contracts contain a clause known as Force Majeure. The purpose of the clause is to suspend or extend time for performance of obligations under a contract, if you are unable to fulfil such obligations as a result of an unusual event that was not foreseen at the time of making the contract and the event is beyond your control.
The wording of each contract will differ, but qualifying 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 apply 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. Frustration will effectively bring the contract to an end. Proving Frustration can be more difficult 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 under it, so it's important to seek legal advice. The question is the extent of the impact that Covid-19 has had on the performance of the contract – has it absolutely prevented performance or, alternatively, is the hindrance to the contract caused by Covid-19 sufficient enough to trigger the provision?
It may be that the deadline for performance could be extended or suspended, rather than the contract being terminated outright 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 very important to adhere to the notice requirements and time limits under the contract in terms of properly informing the contracting party of the difficulties you face. If you do not do this, you may lose your right to rely on the protection of such a provision.
Does Covid-19 qualify as an Act of God?
Check what your contract says first; the contract itself may define what constitutes an 'Act of God', in which case it will depend on whether an epidemic or pandemic is included within this definition. The definition may also make a distinction between naturally occurring events and Government actions in response to, or in anticipation of, the main event, in terms of whether the latter counts as 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 changes in economic markets and exceptional storms, have not been determined as 'Acts of God'. It is too early to foresee how the courts will apply such provisions to Covid-19.
If you have any concerns about a legal contract compelling you to fulfil an obligation that you feel you cannot accomplish due to the coronavirus outbreak, it is vital that you 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 operating in spite of the recent lockdown order, contractors find themselves in an awkward position. If they are negatively impacted by the coronavirus crisis and can no longer work on site, they may not be able to complete contracts on time, and the contractors' employer 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 set out in the contract. The most important element in most of the standard contracts is giving notice to the employer.
For example, under the JCT DB (2016 edition), the contractor must notify the employer of the delay, the reason for it and the expected duration of the 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 extension of time is in these circumstances and, given the mixed messages from the Government, there may be some scope for argument as to whether Covid-19 in itself is a relevant event. It might therefore work better if contractors include references to the expected (and real) shortage of labour due to self-isolation and practical issues regarding 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. Contract law can be complex, so 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.
John Fawcett is a solicitor specialising in dispute resolution. John can be contacted on 01245 491122 or at email@example.com
Here at Tees, we are fully equipped to work from home and are ready to assist you throughout the Covid-19 situation. Our solicitors all have experience of flexible working and remain in regular contact through Skype, email, phone and regular conference calls. Likewise, we remain available for appointments via whichever contact method best suits you. We know our clients are worried and will have questions; we can provide the answers. Just call us on 0800 013 1165, or contact your usual Tees adviser either by phone or email.