COVID-19 (coronavirus) has created some extremely difficult scenarios within the Travel industry in recent weeks. People may be telling you what you should have had in place to prevent difficulties; what could have been done to prevent worries; and what would be best to solve future problems. But, right now, what can you do?
We have set out three articles for you, Part I helps to explain your position on commercial contracts and force majeure; Part II for Supplier Agreements; and Part III for Agency Agreements. This article is Part one of the trilogy.
Commercial contracts and Force Majeure
At times such as these it is quite common to hear the term ‘force majeure’ banded around as a catch-all suggestion that contractual obligations are no longer enforceable. However, is this truly the case and is it possible to rely on force majeure in light of the COVID-19 pandemic? We take a look, below.
A force majeure (FM) clause seeks to excuse one (or both) parties to the contract, from their obligations following the occurrence of specific events which make the contract impossible to perform for the affected party. FM events are usually defined as acts, events or circumstances beyond the reasonable control of the party concerned.
When drafting FM clauses, wide language is often used so that a range of events are able to be considered as FM events and, further, in such a way so as to ensure that the list provided is not exhaustive. In doing so, certain events can be expressly mentioned within the FM clause (either to be included or excluded as an FM event). This prevents (or is intended to prevent, at least) ambiguity between parties. On the other hand, if the FM clause has no definition of FM events, it is unlikely to be effective due to uncertainty. It is therefore common for an FM clause to have words to the effect of:
Force Majeure Event means any circumstance not within a party’s reasonable control including, without limitation: acts of God, flood, drought, earthquake or other natural disaster; epidemic or pandemic; terrorist attack, civil war, civil commotion or riots, war, threat of or preparation for war, armed conflict, imposition of sanctions, embargo, or breaking off of diplomatic relations; nuclear, chemical or biological contamination or sonic boom; or any law or any action taken by a government or public authority.
Listing events in the way that we see here would ensure that, where those events occur, they are considered FM under the contract meaning that the clause is triggered.
The question of whether or not either party is entitled to any relief from their obligations or liabilities under a contract and, if so, the circumstances in which that relief will apply will depend entirely on the wording of any particular contract, however. There is no general / common law concept of force majeure under English law and so it is entirely up to the wording of the FM clause (if any) within any current commercial contract to decide whether it adequately covers the current COVID-19 pandemic.
Strictly speaking, to be entirely sure that COVID-19 is included within the range of events your contract considers as an FM event, the most desirable wording would be the inclusion of “COVID-19” or “coronavirus” within the FM clause. However, this is, of course, highly unlikely! Instead, explicit wording to the effect of “epidemic or pandemic” is likely to be the most practical source of assistance here. An argument could also be made to say that a reference to ‘acts of god’ is sufficient to cover this pandemic too.
It is the party wanting to rely on the FM clause who must prove that an event is considered FM. If COVID-19 can be considered as within the scope of an FM clause in your contract, the defaulting party must demonstrate the scope of the clause, demonstrate that the facts in question fall within that scope and, also, must be able to show that it has used all reasonable endeavours to prevent or mitigate the FM effects. After which, your next steps will depend on the FM clause and how it is drafted. It may:
• suspend obligations;
• remove liability for performance of one (or both) of the parties; or
• allow either or both parties to serve notice to terminate the contract.
The clause may also require that certain additional steps are taken, before the clause can be relied upon – e.g. giving prompt notice to the other party of the existence of the FM and its impact upon your ability to perform your contractual obligations.
Nevertheless, it is certainly possible that a FM clause in a contract may prove to be a source of assistance, if you are finding it difficult to perform any given contractual obligations in light of the COVID-19 pandemic. That said, you must look at the wording of your FM clause to decipher the effects of FM and decide your next steps.
For these reasons, it is essential that a FM clause should clearly cover all the consequences of invoking the FM clause (including refunds) otherwise you may find yourself in the murky waters of the laws of frustration, contra proferentum… or even having to revert to a foreign lawyer in the absence of an England & Wales jurisdiction clause. Nick Parkinson in our litigation team has dealt with these scenarios in his article, ‘Where Do We Stand With Our Suppliers?’
Before taking such steps as stated within the FM clause, practical considerations should be thought about. Are you able to resolve the FM event? Have you talked to the other party and considered any other options (e.g. an amendment to holiday dates or offering a credit note, rather than a refund)?
Please contact us if you would like to discuss this further.