In an article in Retail Week, Lucy Ward says she expects to see a significant number of breach of contract and damages claims in the retail sector amid the fallout from Covid-19. She considers whether businesses will be able to rely on force majeure or frustration to defend themselves from such claims.
In the article, Lucy points out that if a business cannot perform its obligations, it may be in breach of contract and liable to damages. The other side may also be entitled to terminate the contract. However, the defaulting party might be able to rely on force majeure events to protect itself from liability.
Many contracts contain force majeure clauses that excuse non-performance in the case of a specified event such as an ‘act of God’, flood or epidemic. Covid-19 is likely to count as a force majeure event, but Lucy warns: “Force majeure is by no means a silver bullet for retailers. First, the business typically has to show its performance has been made impossible, rather than simply more difficult or more expensive. For example, it is rare to obtain relief from an obligation to pay money on the basis of force majeure: usually, payment can be made even in crisis situations.”
Where force majeure cannot be relied on, a defaulting party may try to defend itself on the basis that the Covid-19 outbreak has “frustrated” the agreement (meaning the agreement automatically terminates). Frustration can occur when an unforeseen event outside the control of the parties makes a party’s contractual obligations impossible to perform.
Says Lucy: “Successful claims of this kind are rare, but given the unprecedented nature of the Covid-19 outbreak we can expect to see more parties claiming frustration as the retail industry scrambles to pull all the levers possible to support business continuity.”
Finally, Lucy considers rent payments by retailers and says: “Unfortunately for retailers, they will struggle to dispute rental payments through force majeure (rarely found in leases) or frustration.”
The full article can be read here (subscription required).
Force majeure – litigation in the wake of COVID-19
Lexology Webinar – 3.00 pm Thursday 9 April
COVID-19 has impacted almost every area of our daily lives. This webinar will highlight the impact this will have on contracts, and whether force majeure and frustration principles can be applied. Lucy Ward, along with Sean Upson and Mo Bhaskaran, will draw upon their experience in this area, including relating to force majeure clauses following the California energy crisis, the Japan earthquake and tsunami in 2011 and in the wake of 9/11 terrorist attacks.
For more information and to register click here.
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