13st August 2021
Without doubt, the coronavirus pandemic has had huge repercussions on the UK economy with many businesses left reeling from both the pandemic itself and the introduction of government measures to protect the public. Many enterprises have found it difficult to continue operating; supply chains have been and still are disrupted; events have been cancelled, and businesses have been forced to close. Although the pandemic is not over, we are adjusting to new ways of operating and businesses are looking carefully at their commercial contracts to protect their interests. In this article, we will examine five key FAQs in relation to commercial contracts post-pandemic and lockdown.
In English law there is no general rule of what constitutes force majeure, so identifying the COVID-19 outbreak as a force majeure event will depend on the drafting and interpretation of a contract. It is important to identify whether a contract has a force majeure clause and how that clause defines a force majeure event. Does the definition give a complete list of force majeure events or a list of examples or is it non-specific? Does the definition of force majeure exclude foreseeable events? To know whether the COVID-19 pandemic will trigger the clause, you must apply the force majeure clause to the facts of the case. What about a new wave of COVID-19? The virus and its impact is not as unexpected now as it was in early 2020 and suppliers are expected to be better prepared. However, if the virus does interfere with contract performance it could still trigger a force majeure clause. Again, this all depends on the wording and interpretation of the clause when the contract was made and in the context of the information that was available then.
Must an event have been unforeseen for it to trigger the force majeure clause?
Force majeure depends on a contract’s wording and interpretation. So, if a clause defines force majeure, then that should be applied to the facts of the case. If a force majeure clause doesn’t mention foreseeability, then parties may refer to the contract wording and context to argue whether a foreseeable event is or is not force majeure.
Should a force majeure clause in a new contract mention COVID-19?
Covid-19 could be mentioned in a list of force majeure triggers which would prevent it being argued that Covid-19 was a known risk and therefore not force majeure. An alternative option to avoid having to redefine force majeure would be to mention it in the background section of the contract where discussion between the parties involved can be described.
Are damages liable if a contract is frustrated?
Contracts are not frustrated where a valid contract term deals with the situation or the parties should have foreseen the frustrating event when the contract was made. If new legislation prohibits the performance of the contract, the effect on the contract’s validity is a matter of interpretation. Legislation may not prohibit the performance, but public policy won’t allow the contract to be enforced if some aspect of the performance will be an offence. A contract may be frustrated if the performance of the contract has become unexpectedly legally or physically impossible through no fault of the parties involved and no contract term governs the position. A frustrated contract ends automatically and immediately, and the parties involved only have limited rights to compensation. Without frustration or an excuse under the terms of the contract, a party that stops the performance of a contract is in breach which may trigger termination rights and damages may be claimed.
What other sources of contractual relief are available?
There are potentially other sources of contractual relief that should be investigated. Depending on how the contract is drafted, they may include:
- Suspending a contract: some contracts may expressly include specific circumstances allowing a party to suspend a contract but there is no general right under English Law to suspend a contract because the other party fails to perform its obligations. It may be possible in the right circumstances to have an implied right to suspend performance that has become impossible.
- Abandoning a contract: if no right to terminate exists in the contract, then parties can agree to abandon it. However, it is important to understand that silence or inactivity are not enough to ascertain abandonment, there must be an offer from one party that is accepted by the other (including third parties).
- Termination of a contract: termination can be on ‘notice’ or on grounds of a breach or insolvency or after a period of suspension, force majeure or government intervention.
- Varying the contract or renegotiating terms: it is best to avoid disputes if you can therefore varying or renegotiating a contract may be the best solution. Excellent record-keeping is essential if both parties agree to this course of action.
We were named as the ‘Commercial Disputes Specialists of the Year’ in the Corporate Livewire Innovation & Excellent Awards 2020 as well as ‘Boutique Litigation Law Firm of the Year’ in both the 2019 and 2020 Global Awards by ACQ5. Partner, Dipesh Dosani, was named Commercial Litigation Lawyer of the Year in 2019 and 2020 in the ACQ5 Law Awards.
If you would like to talk to one of our expert legal team about a contract dispute, call us on 020 3968 6030, email us at email@example.com or fill in our contact form and we’ll be happy to help.
The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.