Since the World Health Organisation (WHO) declared the virus a public health emergency on 30 January 2020 the outbreak has continued to spread and as at 5 March 2020 there were 95,265 reported cases across 34 countries.

As well as preparing its workforce businesses will also want to consider the potential impact on contracts.

Contractual position

If a party to a contract does not perform its obligations then it is normally liable for breach. However there are possible exceptions to this rule where non-performance is excused due to events outside that party’s control:

(i) Force majeure

The term “force majeure” has no recognised meaning in English law and will not be implied into a contract. Where a contract contains an express clause, it will usually set out how it will operate to delay or absolve one or both parties from all or part performance of their obligations. Whether coronavirus will constitute a relevant event will depend on the individual contractual wording. Such an epidemic may be specifically covered or it may fall within more generic sweep up provisions.

The burden of proof is on the party seeking to claim force majeure to prove that coronavirus falls within the contractual wording and that non performance was a result of the outbreak. That party also needs to show that there were no alternative means of performing its obligations and that it has taken all reasonable steps to lessen or avoid the effects of the event. The burden is therefore on, for example, a contractor to show that it could not have sourced goods or workers from elsewhere due to the outbreak and it should therefore document its attempts to do so.

The consequences of establishing force majeure depend on the terms of the contract and this could, for example, lead to a right to terminate or suspension of certain obligations. This in turn leads to other considerations such as for how long the force majeure event will be classified as such. The contract could also contain notice provisions and it is important that these are strictly complied with.

No doubt the courts will be keenly looking out for opportunistic attempts to reduce or remove contractual obligations by blaming coronavirus.

In summary all contracts (including leases, supply contracts for goods or services) should be carefully checked.

(ii) Frustration

In the absence of an express force majeure clause, it may be possible to exit a contract but only in very limited circumstances. Frustration applies where a significant change in circumstances renders the performance of a contract radically different from the obligations that were originally undertaken. Impossibility of performance is the key requirement and the courts have previously set an extremely high bar to establish this. Mere inconvenience, hardship or financial loss involved in performing a contract, or delay which is within the commercial risk undertaken by the parties, has been held to be insufficient to frustrate particular contracts. A classic example is that a contract for the hire of rooms for the sole purpose of viewing King’s coronation was frustrated when the procession was cancelled due to illness.

Insurance policies

All insurance policies are formed with their own terms and conditions which means that it is vital to check the particular policies held. Businesses that have suffered a loss as result of disruption arising from the coronavirus should consider in particular:

• Business interruption policies – these cover for losses caused by interruption to the business. They may have requirements such as the need for physical loss or damage (which may be difficult to establish), or provide cover only for notifiable infectious diseases (which occurred in relation to coronavirus on 3 March 2020 in England and Wales).

• Liability insurance – business operators could face claims from employees and members of the public if adequate steps have not been taken to protect them from contracting the virus. Public liability and employer’s liability insurance are likely to cover such claims and should be notified as soon as possible.

• Cancellation insurance – many governments are prohibiting and/or businesses are deciding to cancel events which will involve the gathering of a large number of people and which could lead to irrecoverable expenses and loss of profit being incurred.

All policies should be checked carefully to establish whether cover is potentially available and also to ensure that any notification requirements are properly complied with.

Employment issues

Employers have a duty to protect the health and safety of employees and so it is important that advice from organisations such as WHO and government agencies are complied with. WHO has produced guidance on “Getting your workplace ready for COVID-19” which can be found at https://www.who.int/docs/default-source/coronaviruse/getting-workplace-ready-for-covid-19.pdf?sfvrsn=359a81e7_6.

Whilst employers will want to avoid the outbreak being used as an excuse for absences, there will be concerns about keeping those who have been genuinely exposed or are ill from the workplace.

Employers will need to consider, for example:

• Whether the relevant employee’s contract of employment contains an express right to require the employee to stay at home and in what circumstances

• Setting up a reporting system and policy for self-quarantining for those who have been in infected countries or in close contact with people who have visited those countries

• Keeping other employees informed of any suspected or confirmed cases

• Putting in place alternative business practices (such as video conferencing)

There are obviously a large number of issues that arise or potentially arise in relation to such a widespread and contagious epidemic. This is therefore only a brief overview and if specialist advice is required you should not hesitate to contact us.