By Laura Harper, Partner and Henry Thompson, Trainee Solicitor
The rapid spread of Covid-19 has already had a profound impact upon global economic activity. In particular, the Creative Industries have been hard hit by the outbreak. Large and highly anticipated events such as Glastonbury 50 and the release of the new James Bond film - No Time to Die - have already been cancelled or postponed and television companies have been forced to abandon scheduled filming.
Many businesses are being notified of contracts being cancelled or postponed. These cancellations and postponements have extended throughout the sector from theatre and sporting events to concerts and TV productions, leaving business owners and professionals wondering where they stand in terms of delivering projects and services. This can be particularly disconcerting at a time when businesses are looking to protect revenues in a market of reduced commercial opportunities. When reviewing contracts in the context of such cancellations businesses will be drawn to provisions known as force majeure clauses.
If you are notified that a contract has been postponed or cancelled due to Covid-19 then you should check your contract for a Force Majeure clause.
Force majeure clauses should act to protect the contracting parties against the impact of events beyond their control by determining how the contract will be altered if such events occur. The consequences of force majeure clauses vary depending upon how they are worded however, such consequences may include: one or more of the parties being released from some or all of their obligations under the contract; the contractual obligations of a party being suspended until performance of the contract can be resumed; a party being able to request an extension of time to perform the obligations under the contract; or a right of either of the parties to terminate the contract.
It is important to ascertain whether the force majeure clause applies in the circumstances of the coronavirus outbreak impacting an agreement. If the clause does not apply then, unless the contract is frustrated (see below), the rights and obligations under the contract will remain in force. It is also important to bear in mind that if a party interprets the force majeure clause incorrectly then they may become liable for breach of contract for non-performance or wrongful termination of the contract.
The way in which the force majeure clause operates will depend upon how the clause has been drafted and the particular circumstance which caused it to be activated.
It is also important to read the force majeure clause alongside the termination provisions of the contract. If the unforeseen event which activates the force majeure clause results in the contract is being ended then the force majeure clause should feed into the termination clause and the consequences of termination provisions. This is important as the consequences of termination clause will (amongst other things) generally stipulate whether a party is to be paid for work carried out up until the date upon which the contract is terminated.
A Force Majeure clause is often referred to as a “boilerplate” clause. Boilerplate clauses are provisions generally found at the end of contracts which aim to provide certainty to contractual arrangements and are standard to most agreements. The current situation highlights just how important the drafting of boiler plate clauses is.
If a contract does not include a force majeure clause, or if no written agreement exists between the parties then, upon the contract being adversely affected by the occurrence of circumstances beyond the control of the parties, a party may be able to rely upon the legal doctrine of frustration. A contract may be considered frustrated if, after a contract has been formed, an event occurs which makes the contract either impossible to perform or radically alters the performance of the obligations under the contract into something which the contracting parties did not contemplate. The event or circumstances must occur through no fault or action of either of the contracting parties.
Proving frustration is difficult, largely due to the fact that a party relying upon this doctrine generally needs to prove that it is impossible to perform the contract. For example, a party seeking to rely on frustration may have to counter the argument from the other party that the contract may still be performed in the same way at a later date by postponing the event. Nevertheless, if a contract is deemed to be frustrated then the effect is for it to be brought to an end and for the contracting parties to be relieved of their contractual liabilities.
How we can help
Please do get in touch if you would like further information relating to this topic. If you have been affected by cancelled or postponed projects and events we can help to advise you on your position and provide commercial solutions. We can also help you to ensure that the right protective, provisions are included your contracts to enable you to effectively manage risk.
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