Britannia Radio

Swine flu may become a force majeure event, so check your contracts now

OUT-LAW News, 22/07/2009

Companies should dig out their major contracts and read the clauses on 'force majeure' to prepare for arguments that a swine flu pandemic could render contracts meaningless, a legal expert has said.

Commercial contracts carry 'force majeure' clauses which say that major unforseeable events outside of either party's control can relieve companies of their contractual obligations.

Technology law expert David McIlwaine of Pinsent Masons, the law firm behind OUT-LAW.COM, said that if swine flu becomes a major problem in the UK then companies might start to try to invoke force majeure clauses.

"If suddenly half your workforce is out sick and you are a major IT services company and obliged to deliver certain service levels then you might invoke the clause," he said. "It becomes even more difficult because probably your customer is operating with staff working from home."

McIlwaine said that there are no examples of companies going to court to enforce force majeure clauses in relation to plagues or illnesses, but that most cases are settled out of court.

The swine flue illness is already reported to be disrupting business. A Google call centre in Hyderaba in India was shut down last week and 100 workers sent home after one tested positive for the illness.

If a company wants to rely on a force majeure clause it will have to defend its decision in court. The court will decide whether or not the incident qualifies, said McIlwaine.

"They will look at whether it is completely out of the parties' control. A strike might count, but maybe not if it is a strike of your own people because you could be said to control that; and they will look at whether the event actually prevents you delivering on the contract," he said.

McIlwaine said that force majeure clauses were introduced in the First and Second World Wars to deal with agreements such as shipping deals being impossible to fulfil in the context of a major war.

They have been invoked in relation to riots, he said, but whether an illness would be justification will depend on the specifics of a situation.

"If a government declares a state of emergency, for example, or if it says that people should not go to work, then that could have an impact," he said. "As could the definitions given, whether the government calls it a pandemic could be important."

Companies should prepare for negotiations by reviewing their contracts first of all, McIlwaine advised.

"If you have a force majeure contract which says that you are relieved of your obligations in case of war, riot or pandemic then you have a stronger case than someone whose contract doesn't mention pandemics," he said. "Though I have never seen a force majeure clause that mentioned pandemics. In that case you are going to have to rely on it being an act of God for it to qualify."