In the current situation, customers will sometimes be looking for opportunities to terminate contracts with software/service providers and may try to invoke COVID-19 as the justification for doing so. We have already had clients, who are tech service/software providers, contact us to ask whether their contracts with customers can be terminated by customers due to the contractual termination provisions or “Force Majeure”.
All will depend on the precise wording of the contractual provisions in question. Below are some of the frequently asked questions (with clear answers) to help guide businesses navigate their way through such a situation, should it arise.
Q. If the service/software provider is unable to fulfil its contractual obligations due to the virus or the consequences thereof, can the customer terminate the contract?
A. Probably yes but this would be a question of the general termination provisions rather than the Force Majeure provisions.
Q. Do Force Majeure clauses absolve the affected party from the need to fulfil its contractual obligations?
A. Under English law, there is no fixed meaning of Force Majeure. So all will depend on the precise wording of the contractual provisions in question.
Q. Who can invoke a Force Majeure clause?
A. A party that is prevented from meeting its obligations under a contract by virtue of either an extraordinary event or circumstance beyond its control and such event or circumstance falls within the Force Majeure contractual provisions in question.
Q. If a party is contractually entitled to invoke a Force Majeure clause, what rights does this give to such party?
A. Again, this will be a question of the specific wording of the contract but, if applicable, the Force Majeure clause may give the affected party various options, notably not to perform its obligations or to delay performance of its obligations or to terminate the contract.
Q. Is Covid-19 likely to be covered contractually by a Force Majeure clause?
A. If the clause refers specifically to a pandemic or similar then obviously yes. If it talks about “Acts of Government” and the measures taken by the Government as a result of Covid-19 prevent fulfilment of contractual duties, then probably yes.
Q. If there is no Force Majeure clause in the contract, would other contractual provisions or doctrines be relevant in this context?
A. There may be some termination rights that apply/may be invoked but again that would depend on the specific wording of the contract. There is also a doctrine called “Frustration” which might apply if Covid-19 as an unforeseen event, which arose after the contract was entered, has rendered performance impossible or made performance of contractual obligations massively different from what had been envisaged at the time the contract was entered.
Should you require any assistance with your contractual arrangements during this difficult period, do not hesitate to contact the Corporate and Commercial team. This article was written by Corporate and Commercial Partner (and Head of the Technology team) Simon Halberstam.
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