As a result of a pandemic or crisis, businesses may either be unable to fulfil their contractual obligations or suffer loss because suppliers cannot fulfil theirs. Under normal circumstances, a claim for damages for breach of contract would be a possible remedy.

However, if it is clear that the contractual failure was principally caused by an outbreak of disease or other crisis, a claim for breach may not be viable for the following reasons:

Force Majeure

A force majeure clause typically excuses one (or both) parties from performance of the contract in some way following the occurrence of certain events. Because the term force majeure has no recognised meaning in English law, its scope varies from agreement to agreement.

See our Construction Contract specific information.

Frustration of Contract

The doctrine of frustration applies where a significant change of circumstances renders performance of a contract radically different from the obligations that were originally undertaken. Such a change in circumstances must be due to an outside event or change of situation that occurs without the fault of the party seeking to rely on it.

The courts are typically reluctant to find that a contract has been frustrated. Express provision in the contract for the event in question (such as a force majeure clause) will normally prevent the contract being frustrated. However, a contract will not be frustrated simply because it becomes more difficult or more expensive to perform or because the business has been let down by another supplier.

See our Construction Contract specific information.

As a customer

You might find yourself let down in the coming weeks and months.  While you may have contractual remedies, don't forget that when the dust settles, your supplier may (a) no longer exist; (b) no longer be able to help you; and (c) it will take you years to proceed through the courts.

We are counselling a very commercial and practical view - work with your supplier to resolve your issues as non-legally as possible!  If you would like assistance in mediating or brokering a sensible solution with your suppliers, please don't hesitate to get in touch.

As a supplier

NB: DON'T ASSUME THAT CORONAVIRUS WILL CONSTITUTE A FORCE MAJEURE OR FRUSTRATION EVENT

Businesses should review their key contracts if they think there is any risk that an outbreak of disease or crisis situation could cause a breach, to assess what pre-emptive measures they could take to avoid this including stock-piling key materials or resources, or providing early delivery to customers where possible.

Also consider implementing a communication plan (even simply as part of the what-if business continuity planning) to engage with the counterparties of these key contracts in the event of a pandemic or crisis both from the early stages and throughout the affected period.