NEWS EXTRA
to self-declare that they and the relevant employees meet the scheme’s requirements. That said, the government has said that it retains the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims. This suggests that the
government does intend to undertake some form of checks made by at least some employers, which could result in repayment on the basis of fraud or error. Employers should keep written records of the following in the event that their claim is selected for further scrutiny and start
collating such evidence now. This should include detail on their financial situation for the period preceding and during any period of furlough leave; the business case for furloughing, laying off, making redundancies; the criteria applied to the selection of particular individuals; and the
criteria applied in determining the length of any period of furlough. The scheme isn’t perfect, and some workers are excluded, but employers that want to claim must abide by the terms.
Andrew Rayment is an employment partner at law firm Walker Morris LLP.
COVID 19: HOW SAFE IS YOUR SUPPLY CHAIN?
It’s not just employees that the coronovirus pandemic affects. John Warchus looks at what might happen if you or your suppliers can’t fulfill contracts.
AS CORONAVIRUS HAS developed from a local to a global threat with tragic human losses, there are also increasing commercial concerns in relation to the ability of parties to carry out contracts. In particular, the coronavirus outbreak is an illustration of the legal principles of force majeure and frustration which can excuse a party’s non- performance and/or lead to the early termination of a contract. So, does the corona-virus constitute force majeure or a frustrating event which will protect the affected party from a claim for damages?
What is force majeure? Under English law the concept of force majeure can only apply to the extent that there is an express force majeure clause in the relevant contract, it cannot be implied. A party relying upon force majeure will need to demonstrate that: • a force majeure event has occurred which is beyond its reasonable control; • this event has prevented, hindered or delayed the performance of the contract; and • it has taken all reasonable steps to avoid or mitigate the force majeure event.
As a result, the precise scope and consequences of coronavirus will need to be considered in the light of the specific wording in the contract. Where coronavirus is seen as a qualifying force majeure event, this will excuse a party’s non- performance or delay in performing its contractual obligations for as long as the force majeure event remains in place. As this is a rule which protects a party against non-performance, the courts will interpret any force majeure clause
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strictly and the burden of proof will be on the party claiming force majeure to demonstrate that it has arisen and is the sole cause of delay or non-performance. If the force majeure clause refers expressly to “epidemics” or “diseases”, there is a reason- able chance that the virus will be seen as a qualifying force majeure event. Even if such wording is not present, many force majeure clauses refer to any circumstances beyond a party’s reasonable control and so it may also be possible to show that coronavirus should be seen as a force majeure event. Counterarguments are possible and some commentators have suggested that given the outbreak of SARS a few years ago, it is arguable that the cur-rent coronavirus outbreak could be seen as foreseeable and therefore not a force majeure event, unless epidemic or disease is expressly mentioned.
Causation must be shown: as part of the strict interpretation of force majeure clauses, the English courts have stated that force majeure will only be available to excuse non-performance where the force majeure event is the sole reason for the non-performance, so if it is one of several reasons, force majeure will not apply. In addition, the party relying on force majeure will also need to demonstrate that it would have actually performed its obligations “but for” the force majeure event.
Legal effects of force majeure: Whilst this will be covered by the express wording used, most clauses are drafted in such a way that the party affected by a force majeure
event is excused from liability for as long as the force majeure event remains in place. In other words, the effect is only temporary, and the affected party will need to resume their obliga-tions as soon as the force majeure event has passed. In addition, the affected party must usually also take reasonable steps to mitigate against the effects of the force majeure event. Termination rights: in a well- drafted force majeure clause, there will be a provision which allows the party not affected by the force majeure event to be able to terminate the contract without liability in the event that the force majeure continues in place for a stated period. It is important that such a clause is included in order to ensure that the party not affected is not tied into a very long contract where the other party cannot perform its obligations for a significant period. The concept of frustration needs to be distinguished from force majeure: • the legal test for frustration is far stricter than that for force majeure as it requires a party to show that it is impossible to perform a contract (or that the obligations have become radically different) due to the frustrating event; and the legal effects are more dramatic: if it is shown that frustration has occurred, the contract is automatically terminated and neither party has any future obligations to the other (although any contractual obligations that arise before the date of termination will remain enforceable). Unfortunately, the case law on frustration is not as clear-cut as it could be. For example, although some cases refer to “commercial
impossibility” of performing a contract as being sufficient to show that frustration has occurred, other case law makes it very clear that simply because obligations become more expensive (and even uneconomic) to perform, this is not sufficient for frustration. The courts in recent years have suggested that obligations need to become “radically different” after the event for frustration to apply; there is still room for debate as to exactly when performance moves from being more onerous to “radi-cally different” or impossible. In determining whether or not frustration has taken place, the court often has to undertake a complex assessment of all circumstances, including the terms of the contract; its factual background; the parties’ knowledge and expectations about risk; and their view as to the ability to perform the contract in circumstances which are now said to amount to frustration. Before a party asserts that it is entitled to claim force majeure or frustration, it needs to have a detailed understanding of all the background facts and details of the contract. In particular, an assertion which later turns out to be incorrect about the ability to invoke force majeure or frustration could in fact lead to the court rejecting the claim with the result that the party making the claim is itself in breach of the contract, entitling the other party to terminate and claim damages arising as a result of the breach.
John Warchus is a partner at Moore Blatch LLP.
www.buildersmerchantsjournal.net May 2020
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