05-08-2009
Swine Flu: Unforeseen event?
With thousands of people currently seeking treatment after becoming infected with swine flu Gloucestershire businesses could soon find their remaining staff becoming over-stretched and struggling to fulfil customer obligations.
Commercial legal expert Jason Stratford-Lysandrides questions whether a business severely affected by swine flu could defend a claim of breach of contract because of the unusual circumstances of such a global pandemic.
“Most commercial contracts will include exclusion clauses that protect companies against unforeseen events that could prevent them fulfilling their obligations under a contract,” said Jason, a new member of the BPE commercial team.
“With rising numbers of swine flu infections within the UK, disruption to companies through staff absenteeism is a real risk, to such an extent that a business could potentially struggle with meeting its contractual commitments. The problem will be whether a company could defend against any such failure of performance claiming this as an occurrence resulting from a force majeure event,” he added.
A force majeure event is one that is considered unforeseeable and outside a business’ control. Depending on the way a clause is drafted, a force majeure event may specify the types of events that qualify. Items such as a terrorist attack or an unforeseen weather event are often included but it is unlikely that swine flu would be listed in contracts drawn up before the start of the recent outbreak.
However in the months to come some businesses may wish to argue that such a highly infectious virus should be viewed as a valid unforeseeable event.
“It would be sensible for companies to review their current contracts, particularly as medical experts are forecasting that swine flu could get worse again in the autumn,” said Jason.
“If your contract does list pandemic as a particular event then it may be relied on. It will be interesting to see whether companies rely upon an ‘Act of God’ event to cover swine flu as an alternative,” he added.
Exclusion clauses are still subject to a test of reasonableness and it will be necessary to consider the type of obligations that are at risk, the effect on the parties where these obligations cannot be met because of infected staff and what level of mitigation is carried out by the defaulting company.
“A business would have to be severely affected by swine flu to invoke force majeure and thankfully the virus does not yet appear to be having such an impact on UK business. But only time will tell whether future contracts will include pandemics in force majeure clauses,” said Jason.
It should not be overlooked that a force majeure clause is designed to allow for a more flexible and commercial solution to be found, rather than to providing a reason to frustrate the contract. Nevertheless, reliance on such a clause may allow a business not to be held liable for non-performance, provide opportunity to vary the time or method of performance, or the contract may be discharged with specific consequences.
Depending on the way in which a force majeure clause is drafted, it may also include extra provisions. These may include placing an onus on the defaulting business to notify the other as soon as practicable, allow a temporary suspension and extension of time permitted, or in particular cases where there is lengthy delay a contract may be terminated.
Ultimately a court will decide whether such cases qualify as a force majeure event. The sensible solution of course is for the companies involved to keep communication lines open so that the need for court action is avoided. This may prompt a suitable risk assessment and preventative action to be taken, with urgent notification procedures in the event that key staff are taken ill at the same time.
Commercial legal expert Jason Stratford-Lysandrides questions whether a business severely affected by swine flu could defend a claim of breach of contract because of the unusual circumstances of such a global pandemic.
“Most commercial contracts will include exclusion clauses that protect companies against unforeseen events that could prevent them fulfilling their obligations under a contract,” said Jason, a new member of the BPE commercial team.
“With rising numbers of swine flu infections within the UK, disruption to companies through staff absenteeism is a real risk, to such an extent that a business could potentially struggle with meeting its contractual commitments. The problem will be whether a company could defend against any such failure of performance claiming this as an occurrence resulting from a force majeure event,” he added.
A force majeure event is one that is considered unforeseeable and outside a business’ control. Depending on the way a clause is drafted, a force majeure event may specify the types of events that qualify. Items such as a terrorist attack or an unforeseen weather event are often included but it is unlikely that swine flu would be listed in contracts drawn up before the start of the recent outbreak.
However in the months to come some businesses may wish to argue that such a highly infectious virus should be viewed as a valid unforeseeable event.
“It would be sensible for companies to review their current contracts, particularly as medical experts are forecasting that swine flu could get worse again in the autumn,” said Jason.
“If your contract does list pandemic as a particular event then it may be relied on. It will be interesting to see whether companies rely upon an ‘Act of God’ event to cover swine flu as an alternative,” he added.
Exclusion clauses are still subject to a test of reasonableness and it will be necessary to consider the type of obligations that are at risk, the effect on the parties where these obligations cannot be met because of infected staff and what level of mitigation is carried out by the defaulting company.
“A business would have to be severely affected by swine flu to invoke force majeure and thankfully the virus does not yet appear to be having such an impact on UK business. But only time will tell whether future contracts will include pandemics in force majeure clauses,” said Jason.
It should not be overlooked that a force majeure clause is designed to allow for a more flexible and commercial solution to be found, rather than to providing a reason to frustrate the contract. Nevertheless, reliance on such a clause may allow a business not to be held liable for non-performance, provide opportunity to vary the time or method of performance, or the contract may be discharged with specific consequences.
Depending on the way in which a force majeure clause is drafted, it may also include extra provisions. These may include placing an onus on the defaulting business to notify the other as soon as practicable, allow a temporary suspension and extension of time permitted, or in particular cases where there is lengthy delay a contract may be terminated.
Ultimately a court will decide whether such cases qualify as a force majeure event. The sensible solution of course is for the companies involved to keep communication lines open so that the need for court action is avoided. This may prompt a suitable risk assessment and preventative action to be taken, with urgent notification procedures in the event that key staff are taken ill at the same time.
