17 March 2020
Coronavirus (Covid-19): How will it affect your supply contracts in the UK?
In January 2020, Chinese officials identified a new virus. The disease, known as the coronavirus or Covid-19, belongs to the coronavirus family which includes SARS and the common cold.
The disease has rapidly spread beyond China to several countries worldwide, including the UK, with the World Health Organisation declaring Europe as the new ”epicentre” of the pandemic. With governments enforcing lockdowns and travel bans to contain the virus, the potential damage to businesses should not be underestimated. In China, for example, measures to protect the corporate sector are already being implemented. The deadline for tax filing has been extended and the government has issued an unprecedented number of ‘force majeure’ certificates, to relieve exporters from fulfilling contractual agreements with their international buyers.
These lockdowns may cause critical issues for UK businesses engaged in the supply and/or manufacturing of goods, especially if they rely on others further down the chain – whether domestic or overseas, such as China - to supply goods or components. These scenarios create a very real risk that businesses will not be able to fulfil their contractual obligations as a direct result of the coronavirus outbreak.
The question is – can businesses rely on the coronavirus outbreak as a valid reason not perform their obligations under a commercial contract and without consequence?
Force majeure in English law
Force majeure (meaning “superior force”) is an unforeseeable circumstance that prevent a party from fulfilling a contract. Common examples of force majeure are war, strike, riot, plague or an event described as ‘an act of God’ (hurricane, earthquake, volcanic eruption etc).
There is no general doctrine of force majeure in English law and so you will only be able to rely on it if the contract contains an express force majeure clause. If your contract does include a clause relating to force majeure, you may be able use it if certain events are preventing or delaying you from executing your business obligations within that contract.
A party seeking to rely on it must prove that the event is beyond their control and that they have been hindered from fulfilling some, or all of their contractual obligations and there was no way to avoid or mitigate the force majeure or its impact.
Is the coronavirus a force majeure?
Force majeure clauses usually list several force majeure events, and where ‘epidemic’ or ‘infection’ are included, the clause may cover the coronavirus.
Even if these words are not included, many force majeure clauses contain catch-all phrases such as ‘or any other events beyond our control’.
Are you concerned about the impact of the coronavirus on your business?
UK businesses have already started to feel the impact of the coronavirus on their operations. With the number of coronavirus cases rising in the UK, businesses with domestic suppliers, event management companies and many others, will start to feel more disruption over the coming days and weeks. Seek legal advice if you find yourself in this scenario, or a business you are trading with is not fulfilling its obligations, or you would like a general review of your contractual documents to help prevent a similar situation arising in the future.
Relying on the coronavirus outbreak as justification for not complying with any obligations in a contract is not simple. It will need a detailed review of the contractual documents and an understanding of the unique facts of your particular case to determine whether you have other options you can use. For further help and advice please contact Rajiv Malhotra on 01753 279057 or email Rajiv.firstname.lastname@example.org.