Peter Jackson reports on Backhouse Jones’ latest legal webinar, this time focusing on the coronavirus outbreak
At this point, there’s no doubt that COVID-19 – more commonly referred to as ‘coronavirus’ – is going to have a significant impact on all of our lives. By extension, this means businesses must prepare for either sharp increases in demand (in the case of toilet paper and hand sanitiser manufacturers) or equally harsh declines (think coach and bus operators).
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With this in mind, transport industry legal specialists Backhouse Jones decided to hold a webinar on the topic last Friday, aiming to prepare operators for the challenges which lie ahead and offer invaluable legal advice.
Force majeure
Commercial Contracts Solicitor Lydia Ward began the webinar by offering operators some guidance on how to minimise disruption caused by the virus. She began by asking the question: is coronavirus a force majeure event? Essentially, a force majeure event is one which is unexpected and makes the fulfilment of a contract impossible. “The key factor in determining whether a customer or your business can terminate a contract as a result of the coronavirus will be establishing whether or not the outbreak is a force majeure event for that specific contract,” Lydia explained.
Now that the virus has been classified as a pandemic, Lydia said that it’s highly likely to also be recognised as a force majeure event – especially as the SARS outbreak in 2003 was. “However, unlike Chinese law, under English law, you do need to have a specific provision in the contract to be able to rely on this as a reason to suspend or cancel a contract,” she added.
Additionally, even if a contract incorporates a force majeure clause, neither party has an automatic right to extend or terminate a contract if a force majeure event takes place: “You will always need to look at what can still be performed under the contract – establishing that coronavirus is a force majeure event is only half the battle really,” Lydia continued.
Advice for coach operators
“According to ABTA and ATOL, and under the Package Travel and Linked Travel Arrangements Regulations 2018, a customer’s ability to cancel their holiday and receive a full refund depends on the advice given by the Foreign and Commonwealth Office (FCO) at the time of travel,” said Lydia. “If the FCO says it is unsafe to travel to a certain destination or via a particular route, the operator will be obliged to cancel the trip and either find a suitable alternative for the customer or offer a refund. As long as operators can provide a ‘safe, secure and enjoyable’ holiday for customers, they’re not obligated to find them an alternative trip or offer a refund.”
She warned that, unless the FCO has advised against travel to a specific area, an operator’s insurance – or a customer’s – is unlikely to pay out if a trip is cancelled or curtailed due to safety fears. In the event that an operator does have to offer customers a refund (if no alternative trip can be provided), they are advised to then re-claim any losses suffered through their own business insurance policy.
One webinar viewer said that customers were already asking to cancel holidays booked for the summer, and asked what could be done. “You are able to decide on a case-by-case, ongoing basis,” Lydia responded. “You will only need to make a decision for ‘imminent departures.’ So, if someone is asking to cancel a summer holiday, refer to the terms and conditions you have with them. It may be that they have a termination right anyway but that they have to forfeit a deposit or pay a cancellation fee. You’re not at all required to make decisions on trips that far in the future, as far as the regulations go.”
Head of Corporate Brett Cooper added: “Even if the destination in question is currently restricted, there’s no guarantee that those travel restrictions won’t be lifted by the time the trip goes ahead in the summer. Even if travel there isn’t recommended now, you should still keep your options open until a couple of days before the intended departure.”
Once a customer cancels a trip, the relationship ends there – if travel to the destination they were due to visit is restricted at a later date, the operator will not be required to return the customer’s deposit or cancellation fee.
Regular services
“There’s an EU regulation currently in place, 181/2001, that applies to international regular services,” said Lydia. “That regulation states that, where a carrier reasonably expects a regular service to be cancelled or delayed by more than 120 minutes, passengers should be offered a choice between continuation or rerouting to the final destination at no additional cost or a full refund of the ticket price. UK domestic services are exempt from this type of obligation until 28 February 2021.”
General advice for businesses
If a customer attempts to terminate a contract as a result of coronavirus, referring to it as a force majeure event, Lydia advised businesses to continue to submit their invoices to the customer for payment. “Let the customer explain why the invoice is not payable,” she explained. “If disputed, ask that they claim on their insurance to cover your invoice. Carry on as normal at present is our advice.”
She also recommended that businesses check their insurance policies to determine the level of cover they have for situations such as the coronavirus outbreak, and to communicate well with customers or suppliers when disruption is likely to be caused.
“Another key point is to document, in writing, all of the circumstances leading up to the current situation. So, if both parties still want the contract to proceed, explore all options, and if you reach an agreement on any variations to the contract ensure that they are also agreed in writing.
“It’s also important to seek legal advice if you have any questions regarding your rights or obligations in relation to a breach of contract by you or a supplier or customer triggered by the outbreak. If a customer refuses to pay an invoice, citing coronavirus as a force majeure event, please feel free to send those terms and conditions through to us and we can do a comprehensive review and advise you on your position.
“Overall, the key message is to engage in proactive discussions with customers and suppliers, and recognise the importance of longer-term relationships – and the reality of the challenges which are going to be faced by many businesses.”
Customers cancelling because of their own fears
One webinar viewer asked what the requirement would be for customers cancelling because of their own fears over the outbreak, rather than the destination they were due to go to being restricted. “You need to look at your force majeure clause, but equally, if they’re not wanting to carry out the trip because of their own personal fears, that is something that is completely within their control,” Director Jonathon Backhouse advised.
“I’ll use the example of a school hire contract. If a school has closed just because the head master has taken the decision to do that – as opposed to following government, NHS or local authority advice – then that’s entirely within their control and they’ve taken that decision. This means it doesn’t constitute a force majeure in that circumstance, so you should still invoice for the service – they’ve not been prevented from making the trip for a reason outside of their control, they’ve taken the decision themselves.
“If the event itself that they’re attending is cancelled, that’s a really interesting question. Again, look at the specific wording of your force majeure clause, speak to us if you need to, and then we can tell you if the cancellation of that event falls within the clause or not. It depends entirely on what your specific terms and conditions say. Look at what you’ve done previously when events have been cancelled, and establish whether your insurance will pick up the bill.”
For the latest updates on coronavirus – and for advice on how your operations may be affected, visit:
• backhousejones.co.uk
• acas.org.uk/advice
• gov.uk
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