Novel Coronavirus and Force Majeure: How Are Your Contracts Being Affected?

Stephen Wright and Adam Kelly of DLA Piper discuss the impact of Novel Coronavirus on force majeure clauses in contracts.By Stephen Wright and Adam Kelly
March 16, 2020

The outbreak of the Wuhan novel coronavirus COVID-19 has caused, and continues to cause, great uncertainty for organisations operating in the region as well as businesses around the world that rely on China for trade. As a result of the shutdown, mandatory quarantine for travellers and the country’s focus on controlling the outbreak, those who do business in the region are facing growing uncertainty and volatility in the market.

DLA Piper is currently advising clients who are concerned about how these events are affecting their businesses. Given the location of the outbreak, it is no surprise that the main impact we’re seeing relates to manufacturing and supply chain, which has resulted in difficulties for businesses in fulfilling their contractual obligations.

Businesses who have been affected are now seeking to understand their rights and obligations and any relief that might be available to them. Often the first thought that comes to mind in such circumstances is a force majeure clause, which is typically agreed between parties in B2B contracts to allow a period of relief in performance where circumstances arise that are beyond their control. There are several issues to consider before invoking a force majeure clause, some of which we have set out below as an initial guide.

Do you have a force majeure clause?

You will only be able to rely on a force majeure clause if one is included in the relevant contract and it applies to you. English law does not imply force majeure relief into contracts that are silent on the matter.

Can you rely on your force majeure clause in the circumstances?

Simply because a force majeure clause exists (that operates in your favour), doesn’t necessarily mean you have the right to invoke the relief in all situations. Force majeure clauses are typically drafted to include specified events (often called ‘force majeure events’). Whether the current situation constitutes a ‘force majeure event’ is a matter for interpretation that requires specialist legal advice. It is unlikely that your clause envisages the Wuhan novel coronavirus COVID-19 (2019-nCoV) specifically, however it may specify events such as pandemics, epidemics and work stoppages, in which case you may find it possible to argue that the outbreak constitutes one or more of those specified events.

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