To date, the focus of the media in relation to the Coronavirus has mostly been on the cost to human life and health. However, as time goes on, the impact on business is also becoming apparent.
With many factories in the most affected regions remaining closed for up to another 10 days, an increasing number of port and flight path closures and ongoing quarantine restrictions, exports to the rest of the world are inevitably being hit.
As a consequence, UK businesses are starting to feel an impact on supplies, which in turn may start to affect the ability to perform customer contracts.
If supplies to your organisation are (or are at risk of) being disrupted, we’d recommend that you review key customer contracts as soon as possible to establish:
- What your delivery/performance obligations are, in particular, whether there are any strict deadlines;
- What rights your customer has in the event of delays in delivery or non-performance;
- What leverage the contract may offer you in the event that supplies are disrupted.
In relation to the latter, many contracts will contain a force majeure clause as standard. Such a clause will typically allow a supplier to suspend performance of a contract in the event that the supply of goods or services is disrupted due to an event outside the supplier’s control which could not reasonably have been foreseen.
However, the drafting of force majeure clauses varies widely and whether your organisation will be able to rely on such a clause in the context of disruption to supplies resulting from the Coronavirus will depend on a number of factors. These include:
- How the term ‘force majeure’ is defined. There's no standard meaning under UK law and as a result, whether or not the Coronavirus is capable of acting as a ‘trigger event’ will depend on the particular meaning given to the term under the contract;
- The precise nature of the event which caused the delay or disruption. For example, disruptions in supplies due to mandatory compliance by manufacturers or port authorities with orders made by the Chinese government may well fall with scope. On the other hand, voluntary actions taken by private companies (e.g. for the safety of their employees) may be excluded under a force majeure clause;
- At what point a declaration of force majeure can be made. Often a particular period of time must pass first; and
- What relief the clause grants the supplier. As stated above, there will often be right to suspend performance. Alternatively, a supplier may have the ability to extend the time for delivery/performance by a specific period, following which one or both parties may have a right to terminate the contract.
It is, therefore, crucial that businesses pay close attention to the wording used in relevant clauses before making any declaration of force majeure. In addition, organisations need to make sure that they follow to the letter any requirements in the contract relating to the way in which a declaration of force majeure must be made. For example, it will generally need to be made in writing, but will email suffice? To whom/where must the declaration be sent?
If you’d like any further information or guidance relating to reliance on a force majeure clauses, please don’t hesitate to contact a member of the Commercial Services team