Covid-19: Cancellations and Refunds and 'Force Majeure'

The effect of Covid-19 is continuing to impact many businesses worldwide as they are unable to trade normally. The temporary closure of a large number of businesses in the UK has left many business owners wondering where they stand legally in respect of existing contractual arrangements and, in particular, with the issue of refunds on pre-bookings for consumers.

How you deal with these issues will boil down to the specific clauses of the contract and how fair they are - in particular, the presence of a ‘force majeure’ clause. Force majeure, translating into English as “superior force”, is a term frequently seen in contracts to protect both parties.

The Competition and Markets Authority (known as the CMA), a key watch dog in promoting fair competition and the protection of ‘consumer rights’ issued a press release and guidance in respect of refunds to consumers, identifying wedding and private event bookings; holiday accommodation; and nursery and childcare providers as being key and specific sectors to which this issue applied. The CMA’s general view is that any consumer who has not received the full benefit of what they have paid for should be receiving a refund (whether full or partial) and should not be forced to accept vouchers.

However, the CMA did not consider, in the Covid 19 Guidance, its previous guidance on Unfair Contract Terms (issued in July 2015 in respect of the Consumer Rights Act 2015 but still valid today) which expressly acknowledged that ‘force majeure clauses’, if drafted clearly and reasonably, can be fair and enforceable and, in some situations, would mean that a business is not required to give a refund of any prepayment, even to consumers.

In order to properly assess your position as a service provider or a consumer, you need to ask yourself:

• Does the contract contain a ‘force majeure’ clause (whether it is called that or not)?
• Does the wording cover the relevant circumstances (such as a government lockdown to address a pandemic)?
• Is any such clause clear and fairly worded? and
• Is it fair, particularly for a consumer customer, for the business to retain any prepayment?

Please speak to our Corporate and Commercial team if you are seeking to rely on a similar clause; are questioning whether you need to issue refunds; or if you think you should be entitled to a refund.