Force Majeure and Coronavirus

We are all thinking about what the next few weeks and months will bring as we look for support from neighbours, friends and business partners alike.

With COVID-19 all businesses are considering how they will fulfil their ongoing contractual obligations.  Franchisees have the additional worry about how they will continue to operate in line with their franchise agreements.  Every day brings new health advice and procedures, changes in consumer behaviour, possible staff shortages or changes in work patterns, and lastly; supply chain delays.

In this blog we take a quick look at how force majeure clauses may help to mitigate the effects of COVID-19, and help franchisees navigate the next few months.  Enacting a force majeure clause might just allow flexibility to deal with the challenges they face, whilst they keep businesses going, people employed, and everyone safe.

Let’s start with looking at what the Force Majeure Clause is

Force majeure is a contractual clause that is invoked when an event outside the reasonable control of either party prevents the performance of contractual obligations. Sometimes referred to as ‘impossibility,’ the clause will be expressly listed in the contract and permits the termination or suspension of obligations that would otherwise constitute a breach.

How does it apply?

It is worth noting that force majeure has no set definition in common law, meaning that its application needs to be judged on a case-by-case basis. Broadly, the following considerations need to be met in order for a force majeure clause to be invoked:

1. An event has occurred
2. The event has prevented, impeded, or delayed performance
3. The non-performance was due to circumstances outside of the control of the parties

4. There were no reasonable steps that could have been taken to avoid or mitigate against the event.

While the COVID-19 pandemic is in its early stages, a force majeure clause is capable of encompassing such an event provided it has made the performance of obligations impossible and not just less convenient or more expensive. A simple example would be if a busy coffee shop franchise in a London Tube Station had purchased its regular amount of coffee beans and then the government advises everyone to work from home.  If they can enact the force majeure clause, they may be able to cancel the order as the event happened outside of their control. As it is a complicated area of law, we advise that you seek expert legal help to ascertain if this is the case.

If you are concerned about your obligations, then we suggest:

• Review the terms and conditions of all ongoing contracts. If a force majeure clause has been included, take note of the rights it grants you.
• Consider your current resources and measure these alongside your commitments to determine if performance of your contractual obligations is achievable.
• Contact Goldstein Legal if you require further advice.

What if there is no force majeure clause or it doesn’t apply?

Our next post will detail the steps to take if a force majeure clause is not included in a contract, along with another option that may be available – the doctrine of frustration.