Legal problems caused by Covid-19 are likely to continue, says WFW

The legal problems to which Covid-19 is giving rise are likely to continue, according to international energy, real estate and transport legal firm Watson Farley & Williams LLP.

The lawyers advised parties to shipbuilding contracts to “closely monitor the situation and seek professional legal advice to ascertain their contractual and common law rights when necessary”.

Practical steps mentioned included:

  • Builders wishing to assert a force majeure claim should retain documents in anticipation of claims being resisted.
  • Conversely, buyers wishing to resist claims, should put builders to strict proof and not be intimidated by apparent compliance with the qualification criteria.
  • Force majeure notice provisions should be strictly adhered to by builders. These will generally provide that notice of the force majeure event must be provided within a relatively short period of its occurrence (typically between 7 and 14 days). This may place yards in some difficulty if they are not able to identify when the claimed event occurred, and the delay started. It may be open to buyers to allege that notice periods have been missed, which generally results in permissible delay claims being vulnerable to challenge on the basis of time-bars.
  • If buyers receive a force majeure notice, which is not accepted, this should be rejected within the relevant contractual timelines or the entitlement to defend the claim might be lost.

WFW focused on whether the effects of Covid-19 gave rise to legitimate force majeure claims in connection with shipbuilding contracts (which similarly apply to offshore construction contracts), particularly those underway in China.

As other lawyers have observed, under English law, for a force majeure claim to have any chance of success, there needs to be a force majeure clause in the contract. “The scope of a force majeure claim is therefore limited to how it is defined in the contract.”

WFW observed that what might at first sight seem evidence that force majeure had been triggered, was less clear on close reading of the text.

Despite the fact that (a) on a “plain English” reading, force majeure clauses arguably cover the coronavirus, (b) the World Health Organization (WHO) has declared the coronavirus a public health emergency of international concern and (c) the Chinese authorities have issued a number of “force majeure certificates”, none of these factors, whether taken in isolation or together, was likely to be sufficient to qualify the coronavirus as a force majeure event, WFW said

WFW said that it remained uncertain whether these factors would be enough to meet the qualification criteria given that:

  • the WHO declaration is arguably not proof, or evidence, per se, that a force majeure event has occurred;
  • it is questionable whether the force majeure certificates issued by the Chinese authorities have force of law; and
  • in view of the above, it is strongly arguable that an English law tribunal should not give significant evidentiary weight to either.