The economic impact of the ongoing coronavirus (or COVID-19) pandemic is being felt acutely in a number of sectors. In this note we consider the principle ways a party to an Irish law contact might seek to avoid or postpone its obligations in the event that the pandemic impacts its ability to perform.
Force majeure clauses
Irish law has no freestanding doctrine of force majeure. Rather, force majeure clauses are express terms that provide for discharge of obligations, or other relief, in pre-defined circumstances. As a matter of Irish law, the effect of any particular force majeure clause will turn on its own wording, nevertheless a number of general observations can be made.
- The World Health Organisation, on 11 March 2020, describing the COVID-19 crisis as a pandemic may amount to a trigger event for the purpose of some force majeure clauses.
- A force majeure clause may still be triggered even if it does not include an express reference to a "pandemic". For example, in the correct circumstances, references to "disease", "epidemic", "national emergency" and other similar terms may be sufficient be provide a trigger.
- Secondary events, such as steps taken by states in response to the pandemic, could also be sufficient to trigger force majeure clauses. In particular, quarantines and restrictions on movement may be sufficient to trigger a given clause.
- In addition to specifying particular events, some clauses contain more generalised references to matters beyond a party's control. These may provide a further potential trigger albeit care should be taken given that force majeure clauses are typically construed against the party seeking to rely upon such clauses.
- The clause will contemplate what severity of impact needs to be seen before it can be invoked. A clause whereby relief is available if an event "prevents" performance will not trigger as readily as a clause whereby it is sufficient that the event "hinders" or "delays" performance.
To rely on a force majeure clause, a party would need to be able to prove that the pandemic (or a secondary event, which falls within the clause) was the cause of the inability to perform. Causation is a necessary element of reliance on such a clause. Related to this, it is generally the case that force majeure clauses do not excuse failure to pay (as opposed to failure to perform substantive obligations).
Even if a force majeure clause is triggered then the impacted party is likely to remain subject to a duty to mitigate. Accordingly, it is likely that the party seeking to rely retains an obligation to take steps to seek to minimise any loss.
Some force majeure clauses incorporate notice requirements, which are themselves potentially significant. In such cases, notice must be given in a timely way and in accordance with applicable contractual provisions. There is a risk that, if notice is not given in a timely manner then relief that was (at one stage) available becomes unavailable.
Given the common law's traditional reluctance to interfere with the commercial bargain, it comes as little surprise that mechanisms for exiting a contract, outside of express force majeure provisions, are limited. The most obvious alternative mechanism is the common law doctrine of frustration.
Generally, frustration will only be available in the following circumstances.
- The potentially frustrating event occurs after the date of contract.
- The potentially frustrating event goes beyond what was contemplated by the parties upon entry into the contract. It therefore generally follows that, if the contract contemplates a particular event (either in the force majeure clause or otherwise), frustration will generally not be available.
- The potentially frustrating event is of a magnitude that it goes to the essence of the contract and performance is either impossible, illegal or radically different from what was contemplated at the point of entering the contract (as discussed further below).
- The potentially frustrating event is not due to the fault of either party.
The courts of Ireland (and England & Wales) have struggled, over many years, to set out a single coherent test for frustration. The traditional touchstone, in both jurisdictions, has been the House of Lords decision in Davis Contractors v Fareham UDC1 and, in particular, Lord Radcliffe's dicta that the: "obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract".
More recent authority has emphasised that focus on a single test is not necessarily helpful and that the courts will take account of all the facts and circumstances when deciding if a contract has been frustrated. Whilst this gives flexibility as regards the application of the doctrine, this does mean that each case is likely to turn on its own individual facts.
In broad terms, the authorities in which frustration has been argued more successfully tend to be where the subject matter of the contract has been destroyed or put out of reach (for example, by reason of fire, seizure or expropriation) or, in the case of performance by a named individual, the incapacity of that individual. Delay that is sufficient to frustrate the commercial venture of the parties may be sufficient. On the other hand, it is generally said that inconvenience, hardship, financial loss or delay that is within the commercial risk of the parties are not normally adequate to amount to frustration.
It follows that further analysis would be needed on the facts of any individual situation before it can be said that frustration may apply. In the context of the current pandemic, one can see that the doctrine may be more readily applicable where performance by a particular individual is contemplated and such performance then becomes impossible.
If made out, the effect of frustration is that the contract is terminated automatically without act or election on the part of the parties.
1  AC 697
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.