Taylor&Emmet’s Media Law Department looks at how English contract law on force majeure and frustration applies to the COVID-19 pandemic and highlights other contractual hints and tips that clients should be aware of.
Most contracts deal with obligations that the contracting parties agree to follow -for instance, obligations to deliver a product or perform a service. Failure to carry out these obligations will usually result in a breach of the contract. Minor breaches often have only minor consequences, but more serious breaches can result in liability to pay compensation, give refunds, a right for the other party to terminate and so on.
During the COVID-19 pandemic, I have received a number of queries from those working in the media and entertainment sector who are keen to understand their liabilities under their contracts should COVID-19 cause delay, cancellation or a failure to perform obligations, and to find solutions.
You will note from the start of this note that I have referred to the laws of England & Wales. As a Solicitor practising in England & Wales, contracts I advise upon are governed by English law – meaning the language of the contract will be interpreted under English law principles.
However, the obligations under the contract may be performed in another country. For example, French law will govern whether production of French film content for a TV series must be postponed or cancelled. Therefore, before we come on to COVID-19 and is effects in respect of contract law, please look first at the law which applies to your contract(s). This will also be relevant to test the impact of force majeure (considered further below).
Look out for the clause(s) dealing with:
- the governing law of the applicable contract; and
- the laws in the jurisdiction where the obligations are being performed (particularly with regards to any mandatory restrictions in place regarding imports/exports, production etc).
Is COVID-19 classed as a force majeure event?
Force majeure (literally interpreted as “superior force”) clauses are contractual clauses which alter the contracting parties’ obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations.
Under English law, relief from contractual obligations as a result of a “force majeure” event is only available if expressly provided for in the contract. Unlike civil law jurisdictions, English law has no statutory provisions governing force majeure, nor will force majeure be implied into contracts.
English law force majeure clauses tend to include either – and often both – of the following types of clause:
- a clause containing an exhaustive list of circumstances or events that constitute force majeure; or
- a statement that a force majeure event is any event “beyond the reasonable control of the affected party” – often coupled with a non-exhaustive list of events which shall be considered force majeure.
If the clause follows example (1) above, it will be important to check whether it contains specific wording relating to disease, epidemic or pandemic (or similar). However, if pandemic is not expressly listed, other force majeure events that may be applicable to COVID-19 include:
- “shortage of supplies” – where the downstream impact of the COVID-19 is limited availability of supplies in the market as a whole, not just from a party’s contractual or preferred supplier;
- “labour shortages” – where workers are unable to supervise events or other operations because they are off work due to sickness, self-isolation or perhaps furloughed; and
- “act of government” – where an order by a government or a government agency in a country has prevented performance.
If the contract follows example (2) above, then on the face of it COVID-19 is an event beyond the affected party’s reasonable control, and whilst it will be helpful if the clause then references pandemics or disease, it is not essential.
In either instance, it’s worth bearing in mind the following:
- Even if COVID-19 is a force majeure event under a contract, it does not automatically follow that performance of all obligations under a contract will be beyond the reasonable control of the affected party, who will probably still need to comply with the remaining steps below in order to claim relief; and
- It’s important for an affected party to be clear whether it is relying on COVID-19 as the force majeure event, or another event or circumstance that may have arisen as a result of COVID-19 (for example travel restrictions or lack of workforce). This could be important for when notice obligations are triggered (see below) and how long the force majeure event is set to continue (COVID-19 may continue for months whereas shortage of supplies may be shorter term).
NOTE that not all force majeure clauses are the same such that each case will turn on its own facts and the interpretation of the wording used in each agreement. Therefore, it is important to seek legal advice regarding the interpretation of such clauses.
Are the affected party to notify the other party/parties to a contract of a force majeure event?
The short answer is that most force majeure clauses will require that the affected party gives notice that it can’t comply with the contract by reason of force majeure, and this notice will usually need to be given either within a specified period or “as soon as possible”.
The requirement to give notice may be drafted as a contractual obligation to serve notice, or as a condition to claiming relief. Look out for words/phrases such as “provided that” or “conditional upon” – these may indicate that if the affected party fails to serve notice within the required time period it will lose its right to claim relief.
NOTE: force majeure clauses often require that a specific notice is issued by an affected party if it wishes to claim relief from breach of contract under a force majeure clause. As highlighted above, the precise requirement under a contract will depend on how it is drafted, but a general ‘alert’ may not satisfy the force majeure notification requirements in the contract.
