The colossal impact of coronavirus on global business is now becoming clear. Of course there are hopeful signs that some businesses may start to recover as some of the ‘lockdown’ restrictions begin to be lifted. But as reports emerge that the UK economy has contracted by 20% it’s clear that most businesses are going to face significant commercial pressure for some time to come. Disputes over contractual obligations are likely to arise, and force majeure clauses will come under particular scrutiny. Here at Nath Solicitors in London we provide specialist advice on commercial disputes and contractual matters to small and medium-sized businesses based in the UK and internationally.
A party to a commercial contract seeking to rely on force majeure provisions must show that an event has occurred that is:
– Beyond the party’s control
– Not due to negligence of the party seeking to rely on force majeure
– Making it impossible for the party claiming force majeure to perform its contractual obligations
We’ve examined force majeure clauses before, explaining when they can be used. We suggested that sometimes one party to a contract may unreasonably attempt to evade its obligations by seeking to rely in this type of contractual term. But a recent case – 2 Entertain Video Ltd v Sony – highlights the limits of force majeure provisions. We discuss the case below. It demonstrates that – even in the context of coronavirus – parties to commercial contracts will not always be able to invoke force majeure when they encounter difficulties in performing their side of an agreement.
As the repercussions of coronavirus continue to be felt throughout the world we think 2 Entertain Video Ltd v Sony is a useful reminder of the need for caution when it comes to force majeure provisions. In the case the High Court rejected arguments by Sony that a damaging fire at its warehouse constituted an unforeseeable force majeure event. The full facts were as follows:
Sony (the defendant) and the 2 Entertain Video company (the claimant) were parties to a logistics contract under which the defendant provided extensive storage facilities to the claimant. During the London riots of 2011 the warehouse storing goods belonging to the claimant (valued at £40 million) was set on fire, and they were destroyed. Although the claimant recovered the value of its goods through insurance it sued the defendant for further losses that were not recoverable under the insurance policy. It claimed the defendant had not properly secured the warehouse. The defendant argued that the riots amounted to an unforeseeable force majeure event. The relevant clause in the contract stated:
“Neither party shall be liable for its failure or delay in performing any of its obligations hereunder if such failure or delay is caused by circumstances beyond the reasonable control of the party affected including but not limited to industrial action (at either party), fire, flood, wars, armed conflict, terrorist act, riot, civil commotion, malicious damage, explosion, unavailability of fuel, pandemic or governmental or other regulatory action.”
The judge agreed that the fire (and riots) might have been unforeseeable but nevertheless the defendant ought to have had additional measures in place to prevent such a devastating fire. In particular, the High Court noted that
– The defendant hadn’t carried out a security risk assessment of the premises despite two previous security breaches that showed security defects that were easy to resolve
– No evidence was presented that the defendant had carried out a risk assessment for the possibility of an arson attack
These oversights meant that:
– The defendant could have prevented the fire
– The fire was not an event that was beyond the defendant’s control
– The fire was not an event that could justify reliance on the contractual force majeure provisions
Note that the judge made this ruing even though ‘fire’ and ‘riot’ were mentioned specifically in the force majeure clause.
We believe that coronavirus will enable many organisations to legitimately rely on force majeure to avoid fulfilling contractual terms. However as the 2 Entertain Video case shows, these clauses won’t always provide non-performing parties with a get out: if they could reasonably have acted to avoid the hurdles they say are preventing their performance of the contract, not even coronavirus will help them avoid their contractual obligations.
We act for small and medium-sized businesses involved in commercial disputes. If you are encountering difficulties in performing commercial contracts or a party with whom you have an agreement has failed to fulfill contractual terms, we can help. Please contact Nath Solicitors on 44 (0) 203 670 5540 or contact the firm online.
"Shubha Nath is my go-to lawyer. She provided my department with commercial legal services for the best part of 10 years. She listens carefully to what the business requires, is clear in her explanation of complex legal agreements and frameworks and is incredibly fast at turning round documents. I was so impressed by her I've recommended her company Nath Solicitors to other businesses."Testimonial From Bernard McKeown
"Shubha, I'd just like to thank you for helping me to come to an amicable settlement with my former company co-directors so quickly and effectively. The advice and suggested approach certainly worked very well for me and I also felt a sense of safety and control being mentored through a very daunting process. You are brilliant at what you do and you helped me to cope with a very stressful situation. I would not hesitate to recommend you and Nath…Testimonial From Stephan Hepton
“I would like to thank and recommend Nath Solicitors and Shubha personally for all your professional advice and help. We have a variety of business interests from Medical and Dental to Analytics and Artificial Intelligence; I am extremely impressed how Shubha has been able to advise in all of these fields for a variety of unrelated projects. We have been particularly impressed with hard work, dedication, professional approach and personal touch. Dr Chetan.”Testimonial From Dr Chetan
I live in Saudi Arabia. Although thousands of kilometers separated us, I picked up the phone and talked to Shubha and I asked her to help me in what I believed was a fraud case. She answered gladly. She was smart, honest, and professional; she has been receiving my calls, letters and emails for more than one month did not seem to mind at what time I communicated with her and it was any time and she always responded quickly. Shubha…Dr Aldarwish ( International client)
We are pleased to note our satisfaction with the standard of service, offered to us by qualified and efficient team of Nath Solicitors. This is a Firm with high integrity and strong, traditional, values focusing on providing the utmost levels of customer satisfaction but don’t just take their word for it, take time to review their customer testimonials. Shubha Nath, who has been providing services to our company, has shown how passionate she is about her job and has delivered…MD of Security Company Dispute Resolution Testimonial
Client comment on company incorporation and advice on a shareholders agreement prepared by Shubha Nath. We felt well advised and Shubha protected our interests immaculately and we are truly very grateful to her for all her help in securing our interests. Director Food Company.Director of a Food Company
We would like to reassure clients that everything at Nath Solicitors is
business as usual.
During this COVID-19 outbreak, we would like to reassure you that we have well formulated business continuity plans in place to ensure matters are dealt with.
During these uncertain times we know that you may have concerns about your contract. At Nath Solicitors we are currently offering special fixed prices for a review and short initial consultation; if you need help contact us via our contact form or by email at email@example.com and we will be happy to assist you.