Is COVID19 an Act of God?

24-03-2020

As lawyers, we always advise clients to put their contracts in writing.  Having a written contract is a good way to avoid/reduce ambiguity over standard terms like delivery, payment terms, quality of goods and services etc.

One of the clauses that often doesn’t have a lot of publicity is what is known as the “Force Majeure” or “act of God” clause.  However, the fast spread of COVID-19 has brought the use of the act of God clauses into sharp focus.

Perhaps the most common (and if you’ve booked a holiday abroad, important) mention in the press of force majeure clauses is in relation to insurance and the cover it provides.  If you have questions about your insurance cover, then you should speak to your insurance broker about this.

The other important use of these clauses is in relation to commercial agreements, such as supply of goods or supply of services.

Assuming your contract has a Force Majeure clause – if you don’t have a written contract then there won’t be one – it will specify what will happen in the event of a disruption to the supply of the goods or services.  For example, it’s not unusual to have a provision saying that: Neither party shall be in breach of this Contract nor liable for delay in performing, or failure to perform, any of its obligations under this Contract if such delay or failure result from events, circumstances or causes beyond its reasonable control.

It’s also not unusual for such a contract to have provisions for terminating the contract if the period during which the contract cannot be performed continues for longer than a period of x weeks.

So what does this mean to you as a business? 

Well, it depends on what your contract says but, using the example set out above, that if, as a result of something outside of your control, either you or someone else in your supply chain is unable to provide crucial parts or equipment, which in turn causes a delay, you may not be able to be sued for breach of contract.  It could also mean that you can terminate a contract without penalty if the act of God continues, which if you don’t want it to do so, gives you a chance to renegotiate the terms of the agreement.

It’s worth pointing out as well, that if you deal with overseas suppliers, and you have traded under an agreement that is subject to a different jurisdiction, then a different set of rules apply.

Here at James Legal we have extensive experience of drafting and negotiating commercial contracts as well as dealing with disputes arising out of breaches and potential breaches.

If you would like advice as to what your contract says about “force majeure” and “acts of God” clauses, and what steps you can take if you think it applies to you, then please get in touch and we will be more than happy to help you out.

In addition to this, we can also offer you and your business a general review of your existing terms & conditions and contracts (including any employment contracts and staff handbooks).

Please contact Byron Swarbrick on 01482 974513 to discuss matters further.


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