As the global effect of Covid-19 increases day by day, parties’ abilities to perform contractual obligations have been impacted and will inevitably be further interfered with as this pandemic continues.
In Brief: It remains to be seen whether Covid-19 will enable parties to affected commercial contracts to invoke force majeure relief and therefore excuse non-performance or delay of their contractual obligations, or will it remain possible to issue proceedings against parties for breach of contract, despite the cause of non-performance being the current global pandemic?
Widespread Non-Performance of Contracts
Coronavirus has impacted the wider world to an extent that no-one could ever have envisaged, and the impact it has had on the economy seems likely to continue for the foreseeable future. It is inevitable that substantial business and operational disruptions, including interference to supply chains and business arrangements, is set to continue and increase in line with the restrictions being justifiably imposed in an attempt to counteract the current pandemic. However, one significant question which arises as a result is whether the global pandemic will be viewed by the courts as constituting a force majeure event and will essentially provide parties with an excuse in respect of delay/non-performance of their contractual obligations or whether a party will continue to be liable for breach of contract.
What is “force majeure”?
A force majeure clause can provide relief to a party who is unable to fulfil their contractual duties due to an unforeseeable event or situation i.e a “superior force”. A force majeure event can either excuse a person from the contractual duties entirely, allowing both parties to walk away and consider alternative options, or alternatively, suspend their contractual obligations temporarily for the duration of the force majeure event.
Some legal systems have codified the concept force majeure into legislation and therefore the inclusion/non-inclusion of an express force majeure clause in the contract is not all that important. Codifying the concept of force majeure into legislation permits a government to deem a specific circumstance/event as constituting a force majeure event. This can be seen in China whereby on the 30th January of this year, the quasi-governmental China Council for the Promotion of International Trade (CCPIT) announced that it would issue “force majeure certificates” with a view to protecting companies in situations where disputes have arisen with foreign trading partners due to their inability to perform their contractual obligation as a result of the measures implemented by the Chinese Government in response to the Coronavirus pandemic. To date, it has been reported that thousands of certificates have been provided to companies in an effort to protect them against liabilities for non-performance of contractual obligations.
In Ireland, no legal presumption in favour of force majeure provisions exists and in fact, due to the serious impact that force majeure clauses can have, a strict interpretation has always been adopted by the Irish courts. In order for a party to rely on the concept of force majeure to relieve or delay their contractual obligations, it is necessary for there to be an express clause included in the contract which provides for the discharge of a person’s obligations in pre-defined circumstances. In essence, it is not sufficient that a general force majeure clause merely be included in the contract but rather the parties to the contract must have contemplated and determined the relevant circumstances/events which would constitute a force majeure event and set them out expressly in the contract. As a result, generally a force majeure clause may provide a non-exhaustive lists of events/circumstances which would trigger the force majeure provision. Obviously, it will prove easier to rely on the force majeure provision if the event/circumstance in question is expressly contained in the provision. Therefore, it would appear that unless terms such as ‘medical emergency’, ‘pandemic’, ‘outbreak’ etc. are expressly specified in the force majeure clause in the contract, it may be more difficult to rely on the relief afforded by the force majeure clause, but nevertheless not impossible.
In order to successfully rely on a force majeure clause in relation to the current pandemic, it is necessary that the party claiming inability to perform their contractual obligations is able to show that this inability is a direct result of the Coronavirus. Certainly, it appears that the concept of force majeure does not provide assistance whereby a party seeks to rely on it for non-performance of contractual obligations relating to payment. One aspect that is not clear under Irish law is whether force majeure provisions will have effect if performing the contract merely becomes uneconomical or more difficult, rather than actual impossibility of performance.
An additional requirement is that the party must be seen to take all reasonable measures to mitigate the event or the consequences which follow same. Force majeure clauses also may contain notice requirements which vary depending on the contract. Some contracts may require immediate notice to be provided or notice within a specified timeframe of the force majeure event occurring, whereas others may simply require notice within a reasonable timeframe. One consideration in this regard is when the force majeure event is deemed to have occurred – was it when Covid-19 was declared to be a global pandemic or was it when restrictions were imposed on travel and movement which ultimately rendered performance of the contract impossible. Determining this will be important in terms of when notice was required and if this was adhered to by the party seeking to rely on the force majeure provision.
The question of whether the current global pandemic and the inability of some parties to perform their contractual obligations as a result of same will be deemed to constitute a force majeure event under Irish law is not certain at this stage. It is made all the more unclear due the narrow interpretation that the Irish courts have adopted in respect of force majeure provisions in the past. Essentially, even if the contract contains an express force majeure clause, it appears that a general catch all provision may be declared void by Irish courts due to it being too vague. Therefore, it may be necessary for the parties to the contract to have considered and expressly set out in the contract specific circumstances in which a force majeure provision will be deemed to operate. It follows from this that unless Covid-19 can be deemed to fall within the scope of these pre-defined circumstances, the relief of the force majeure provision may not be afforded to an affected party and they may still be deemed liable for breach of contract.
While force majeure provisions appear to be construed strictly in Ireland, it is important to note that the current global pandemic is unprecedented. It is therefore impossible to tell how public policy decisions and government directives will impact the judicial consideration of force majeure clauses in the future. Nevertheless, disputes arising in relation to force majeure provisions and the Coronavirus pandemic appear to be inevitable.