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Contractual performance and force majeure

In an effort to protect public health and prevent the spread of Covid-19, the Government is, on an ad hoc basis, introducing Regulations which potentially impact on the ordinary activities of people and businesses. We have seen Regulations which require certain businesses and venues to close and which potentially impact on the free movement of people.

The Secretary of State has powers to make further Regulations and it must be assumed that such powers will be exercised as the situation continues to develop over the coming weeks and months. In addition, general Government and Public Health England guidance, which may not be incorporated in to Regulations, may continue to impact on business operations.

Restrictions imposed by law and any future Government directions may well interfere with contractual performance and those finding performance difficult or impossible should continue to:

  • urgently review their contractual arrangements and assess whether they have any contractual rights to relieve pressures, including force majeure provisions which may permit termination or suspension of the contract or the obligations
  • consider whether the contract might be discharged entirely on the basis that it has become physically or legally impossible to perform 
     
  • alternatively monitor further changes in the law and Government directions which might make performance impossible or illegal in future
  • check insurance policies to see whether they may cover the outbreak or the effect on your business

Those businesses impacted by new laws or any Government directions are much more likely to be able to bring contracts to an end or suspend performance of contractual obligations without incurring liability for alleged breach of contract by relying on contractual force majeure clauses or the common law doctrine of frustration.
 
Such businesses are advised to urgently review their written contracts to identify any force majeure clauses, assess whether new laws or any directions from the Government will excuse performance or enable the contract to be terminated and take the appropriate steps to serve notices required to take advantage of the force majeure provisions.

In the absence of written contracts or effective force majeure clauses triggered by new laws or Government directions, businesses should continue to assess whether such laws or directions have struck at the very heart of their commercial arrangements making them physically or commercially impossible to perform.

You may find it helpful to refer to our flowcharts on force majeure and frustration for guidance and further assistance on what steps you might take.

Once you know where you stand, we can help you to avoid and reduce onerous obligations and/or negotiate new opportunities, helping to preserve long-term relations with suppliers and customers.

As we have seen from the daily updates from the Government, this is a fast-moving area and is likely to change from day to day, week to week. Our dispute resolution and commercial experts are ready to assist.

 

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