COVID-19: Force Majeure And Negotiating Contracts

As the COVID-19 outbreak continues to cause unprecedented disruption to the global economy, businesses need to think about how they will address the pandemic in contracts that they are currently negotiating.

Current projections of the scale of the pandemic make it difficult for a party negotiating a contract to argue that loss due to Coronavirus is "unforeseeable". This makes it even more important that the contract spells out the parties' intentions if the outbreak prevents performance.

Does the doctrine of frustration continue to apply?

When an event occurs after a contract has been agreed that prevents one party from fulfilling the contract, the court can relieve them from liability under the doctrine of frustration. While COVID-19 has been widely reported since December 2019, it has only recently triggered a number of events (e.g. travel restrictions and lockdown) that may prevent performance. Over the coming months, further action may have a similar impact. Parties should remember that frustration will not apply if the event could have been foreseen.

In Flying Music Company Ltd v Theater Entertainment SA and others [2017] EWHC 3192 (QB) a theatre promoter based in Greece argued that its contract with a live entertainment promoter to put on performances of the West End show Thriller Live during June 2010 had been frustrated due to civil unrest. The court held the contract had not been frustrated because:

"The parties both knew enough about the risks that this posed to the success of the production for it to be wrong, now, with the benefit of hindsight, to re-allocate those risks by releasing Theater Entertainment from its Contract obligations."

This is an important point if you are currently in negotiations. While the full impact of the Coronavirus pandemic is not yet known, it is unlikely that the court would intervene if...