Can a company use COVID 19 as a force majeure event?

During these difficult and unprecedented times when the lives of most of us have been interrupted in many ways, COVID 19 has also had a significant impact on businesses globally.

One sector which has been affected is the dairy industry as a result of the demand for milk and dairy products changing globally,  resulting in a reduction in milk price, delay in  payments and in some instances, delay in the collection of milk leaving the milk producer  (farmer)  in the impossible and heart-breaking position of having to dispose of thousands of litres of milk.

In some instances, the milk processing companies have tried to rely on the legal term of force majeure and the question I have been asked over the past few weeks is can a company unilaterally change the terms of a contract at very little notice or use COVID 19 as a force majeure event?

Force majeure is an exclusion clause within an Agreement. It prevents liability for breach of a term within the Agreement resulting in the company having a shield against liability.

For a company to successfully rely on COVID 19 as a force majeure event, there must be a specific clause within the Agreement which covers an unforeseeable and unavoidable event or an event which is beyond the reasonable control of the company. Force Majeure can only be incorporated in a business to business Agreement and it cannot be relied upon simply because it is no longer economical for the company to carry out the contract.

Whether a company can successfully rely on the force majeure clause within an Agreement or can unilaterally change the terms of a contract is wholly dependent of the terms and wording of the individual Agreement. Whilst it may be possible to take legal steps in some circumstances, such steps are wholly dependent on the terms of the Agreement and the individual circumstances of the farmer.

Producers who find themselves in difficulty would benefit from obtaining legal advice. In some instances, it may be beneficial for the producer to also make direct contact with the milk processing company to discuss the issues. Communication is essential, as although there may be legal steps that can be taken, such steps depend wholly on the terms of the contract and the individual circumstances of the farmer.

Farmers’ unions across the UK are actively lobbying for clarity on the issues and are in regular discussions with DEFRA and the hope is that financial assistance may be available to producers who have been directly affected by these issues.

A final word of advice, it would seem that  the tendency is for the milk processing companies to instruct their legal representatives to draft the Agreements and it is unclear how many producers  obtain legal advice on the terms of the draft Agreements before committing themselves to the contract. It is essential  for both parties to seek legal advice on the terms of the Agreement at its commencement  so as to ensure that both  the milk processing company and the processor are on an even keel and are able to successfully negotiate terms which are favourable to both parties going forward.