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Force majeure: Is it time for some herd immunity?

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United Kingdom

Lawyers have been clamouring to air their views on the relationship between COVID-19 and force majeure clauses, but some contract parties may waste valuable time, resources and goodwill arguing for their application.

  The coronavirus (COVID-19) outbreak has created unprecedented conditions in the UK and across the world.

While many affected businesses are scrambling to find some form of protection in their contracts, no standard form force majeure clause will offer meaningful help in these circumstances.

While it is useful to clarify whether a contractor/supplier gets an extension of time in relation to any fixed delivery date, and whether they can claim additional costs, beyond that, these clauses are not designed to deal decisively with situations like that created by the coronavirus pandemic.

The structure of force majeure clauses simply invites a discussion/argument/prolonged and increasingly aggravated chain of communication about whether, in fact, a force majeure event has arisen.

Or, to the extent it has (or might have done), these clauses provide a contractual forum to debate whether a party's obligations are properly prevented/hindered/delayed (as a matter of causation).

Protracted adversarial discussion can waste time and diminish relationships at a time when cooperation and goodwill are needed more than ever.

Unlike similar clauses – e.g., material adverse change/benchmarking/change in law clauses – force majeure clauses very rarely offer practical help to the parties once they find themselves in situations that warrant their invocation.

This is important because a 'true' force majeure is beyond either party's control; there should, in theory, be literally nothing they can do about it (unlike acceleration clauses, for example).

If a contract concerns a scope of works/delivery that must happen (or where there is still a mutual benefit to both parties in securing completion of the contract in some form), a force majeure clause will quickly steer both parties down a blind alley.

If that is the case, very generally speaking, if your contract is not a one-off and the relationship or the wider delivery chain matters, and will continue to matter into the future, parties have the option to:
 
  • Accept that a force majeure event may or may not have occurred, but allow both parties to 'reserve their rights' in relation to it (this is different if one party is not genuinely prevented from performing due to a force majeure event, but is manifestly using it as cover for other motives, such as a desire to get out of a non-lucrative contract);
 
  • Offer to have a 'without prejudice' open discussion about which obligations are actually prevented, which are delayed, and which are now simply more difficult or expensive (e.g., due to labour shortages or travel restrictions on key personnel);
 
  • Look at the programme and scope of works and discuss workarounds. What can be brought forward/pushed back/rearranged?
 
  • Agree what really matters from a time perspective and what can be dropped;
 
  • Agree what is the best outcome for both parties in the circumstances, rather than what each party expected when the contract was signed;
 
  • Put the joint commercial and managerial effort into finding and agreeing a 'Plan B', including how that will (or might) impact cost and time obligations. How should the additional costs fall? What is a fair allocation in the circumstances (again, in a true 'no fault' environment)?
 
  • Ideally, put an agreement in writing and honour it. This may be a contract variation, or a whole re-write. It may just be a case of playing it by ear and putting trust in the relationship.
Summary

True force majeure events concern genuine 'no fault' circumstances.

There is probably still some benefit for both parties in adapting their existing contract to those circumstances.
In this case, the contract is just a proxy for their commercial relationship. Parties rarely (but admittedly, not always) have much to gain by engaging in a prolonged force majeure standoff, which does not realistically present a workable way out of the impasse.

There is some truth in the adage that 'relationships, not contracts, matter', but parties should remember that carefully drafted contracts are very versatile tools, rather than blunt instruments.
 

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