In determining whether an agent can use swine flu in order to avoid contractual obligations, it is necessary to consider the concept of force majeure and whether swine flu can be an event of force majeure.
The first issue arises because, whilst the term force majeure is well known to lawyers and business people, it has no recognised meaning in English law. As a result, before the principle of force majeure can be relied on, it needs to be clearly defined in the agency agreement and must cover the particular event that has arisen. Events of force majeure commonly include fire, flood and storm. More widely drafted definitions of force majeure include events such as labour disputes and pandemics.
The effect of a force majeure clause is to enable one or both parties to the contract to cancel the contract or suspend performance of their obligations under the contract.
As such, can the swine flu pandemic be an event of force majeure? From the definition of force majeure, it is clear that the occurrence of an event that cannot be controlled is the crucial factor. As such, a swine flu pandemic could potentially be an event of force majeure. However, in order to rely upon this, the parties to a contract would need to include a force majeure provision and define events of force majeure so as to include a swine flu pandemic.
In contrast, where there is no force majeure clause that can sufficiently deal with what happens when performance of a contract is prevented by unexpected circumstances outside the parties’ control, the doctrine of frustration may come into play. However the English courts are extremely reluctant to find that a contract has been frustrated and so, where possible, parties should seek to avoid having to rely on this principle by including a well drafted force majeure provision in their contracts.
Swine flu and the Commercial Agents Regulations
The Regulations provide that immediate termination of an agency agreement is possible where there is a failure of one party to carry out all or part of his obligations under that contract or where exceptional circumstances arise. What is “exceptional circumstances” has not been the subject of a reported decision of the English courts. However, it may be that the Regulations cover a situation where the agreement has not been breached by either party but one party is excused from performance. This could be when a force majeure clause has come into operation.
Irrespective of the above comments, in the event that an agent is prevented from performing the agreement as a result of contracting swine flu, a principal would be well advised to take care. This is because the Regulations state that an agent retains his entitlement to compensation or an indemnity where the agent has terminated the agreement because he cannot reasonably be expected to continue his activities as agent as a result of ill health or infirmity. It is also possible that the English courts would look askance at a principal seeking to avoid liability for compensation or indemnity under the Regulations by relying upon the occurrence of a force majeure event preventing the agent from carrying out his obligations.
Another difficult situation is where the agent does not wish to terminate the agreement during a period of non-performance as a result of swine flu. The Regulations do not expressly deal with an agent’s temporary inability to perform his obligations under the contract due to illness.
Accordingly, it would be prudent for a principal to set out what is to happen if his agent becomes ill. For example, should the principal have a right to appoint an employee or third party to cover the ill agent’s duties? In such circumstances, should a reduced commission or no commission be paid to the ill agent?
Written by Jane Elliot