What is force majeure and what is typically included?
2nd April, 2020
A “force majeure” clause deals with a situation where one or both parties are unable to perform their obligations under a contract due to an event having occurred which is outside their control.
This clause would usually deals with the circumstances in which a party cannot be liable for failing to perform their obligations under the contract as a result of a “force majeure” event having occurred.
The term “force majeure” does not of itself have a recognised definition within English law and therefore in order for such a clause be effective, specific events are normally listed within the clause as being considered to be a force majeure event.
It will depend on the type of contract but this would typically include acts of God such as floods, droughts, earthquakes or other natural disasters, contaminations, epidemics or pandemics, terrorist attacks, civil war or certain government action.
Can COVID-19 be classed as force majeure?
In order to answer this, you need to check whether there is a “force majeure” clause in the contract.
If for example, the clause makes express reference to pandemics, COVID-19 could be classed as force majeure as it was declared a global pandemic by the World Heath Organization on 11 March 2020.
Force majeure generally requires some form of unforeseeable event and therefore the timing of the parties entering into the contract will be a key consideration in terms of whether COVID-19 could have been considered a foreseeable event by the parties at the time of entering into the contract.
If the contract cannot now be performed because the Coronavirus Act 2020 prevents it, for instance because travel is required and that travel does not fall within one of the permitted reasons to travel then it may be that the “government action” part of a clause, if there is one, would be relevant.
In the eyes of the law, are brands allowed to cancel orders/purchases because of the impact of COVID-19?
This will largely depend on the wording of any contract.
However it is worth bearing in mind that if there is no express contractual clause dealing with COVID-19, the doctrines of frustration or illegality could potentially apply. Frustration offers limited relief and remedies and only applies in specific circumstances where performance of the contract has become impossible or radically different from what the parties envisaged when they entered into the contract.
Alternatively, the implementation of the Coronavirus Act 2020 may even now render the performance of the contract illegal.
If the contract is demonstrated to be frustrated then it is treated as being at an end, meaning that if a brand can prove frustration that could be a reason for terminating the contract. If the supplier disagrees, ultimately it will be for the Court to decide whether COVID-19 amounts to frustration.
It clearly could, but that should not be regarded as a forgone conclusion. In order to establish whether or not the virus would amount to a frustrating event, it would be necessary to consider the facts of the individual case and explore the relevant factors such as what the parties envisaged the nature of the contact to be and the circumstances surrounding the parties making the original contract.
Is there any existing case law on this?
It is too soon for there to be any existing case law on the impact of COVID-19 but there will no doubt be a significant amount of reported litigation in relation to contractual disputes arising from the coronavirus and matters such as force majeure clauses and the doctrines of frustration and illegality.
There is, however, case law on the concept of frustration generally and this provides clear guidance which can be applied to the current situation.
The allegedly frustrating event must change the nature of the contract so significantly from what the parties could reasonably have envisaged when they entered into the contract so as to make it unjust to hold the parties to the original contract.
A brand will argue that because they have closed their stores they do not require the stock. The supplier will argue that the nature of the contract remains the same; to supply goods which simply become stock for when they reopen. Context will of course be important.
For example, where the goods are fashion goods that potentially may not be in fashion when the stores reopen, that could be a persuasive factor. The outcome will, as always, depend on the particular facts of each case.
As a department we are already seeing a rise in such cases. Given the complexities involved in these disputes, if you are experiencing any such issues then seeking legal advice is highly recommended.
This content was originally supplied for Apparel Insider, a publication focused on the clothing industry, however the principles apply to most supply contracts.
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