Coronavirus And Force Majeure Clauses: Points For Employers And Contractors To Consider

As the World Health Organisation declares the Coronavirus, or 'COVID-19', now to be a pandemic, many involved in the construction industry are fearing that its effects on projects and businesses may be catastrophic.

The areas where it is currently predicted the pandemic may have the most adverse effects are materials and equipment supply chains, leading to suppliers, sub-contractors and contractors defaulting on their respective contractual obligations, and projects falling into delay. Government or local authority restrictions, whether under existing Public Health legislation (such as the Public Health (Control of Disease) Act 1984) or under emergency legislation, such as the new Coronavirus Bill expected to become law in the UK imminently, could lead to project sites being shut down.

Where then does this leave the commercial parties, and in particular at what point can extreme circumstances justify a person from suspending performance or withdrawing completely from further honouring their contractual commitments?

The unhelpful answer is that it depends: it depends on the terms of the relevant contract; on the governing law of the contract; and on any material legislation which already exists or which may be enacted as the current situation develops.

If one takes England, Wales and Northern Ireland first (Scotland has its own construction-related laws) the point to take on board immediately, and which may surprise some, is that, absent express contractual provision, force majeure is not a recognised legal doctrine which excuses or dilutes performance obligations. Indeed, the term is not even recognised as a legal term of art in English law.

That said, some contracts in use in England do expressly legislate for force majeure. So the JCT SBC 2016 form, which is in common use on large Employer-designed projects, does provide that force majeure is a Relevant Event for the purposes of extension of time. However, the contract does not define the term.

So would the effects of the pandemic qualify as a force majeure event in the first place? English law authority on the question is scant, although it was said obiter in Clifford Gardner v. Clydesdale Bank Limited [2013] EWHC 4356 (Ch) that a "flu pandemic" was an event of force majeure. A downturn in the financial markets is not, however, an event of force majeure: Tandrin Aviation Holdings Limited v. Aero Toy Store LLC [2010] EWHC 40 (Comm) and nor is the fact that the contract has become more...