COVID-19 And Business Contracts
As a result of the Government-imposed lockdown many businesses have found themselves unable to operate as normal, which will undoubtedly affect some of their business’ contracts.
Some businesses have had to close entirely such as those involved in the hospitality sector. Other businesses have found themselves severely hampered due to the fact that whilst they can continue to operate social distancing rules mean it is difficult or impossible to continue trading as before.
The current situation is causing a lot of disruption to the normal day to day trading and the supply chains which businesses rely upon to be able to operate their business. Lead times and output rates are much reduced at the moment for a lot of businesses.
For those businesses affected by the pandemic what does this mean for you? Can you simply cease your existing contractual responsibilities without any liability or penalty?
The answer depends upon how good your relationship is with your customers and suppliers, how understanding they are in the current situation. Whilst they may accept the situation as it stands at the moment, once things return to normal they may be less inclined to simply ‘take it on the chin’. Could you be facing legal claims in the future? If your supplier is unable to supply you and you are facing knock on costs and expenses as a result of this might you be able to claim some of these back as a result?
If you have a written contract with your customers and with your suppliers there may be what is called a ‘force majeure’ clause. This clause allows the parties to be absolved of liability for failing to perform their obligations under the contract if there is an event, circumstance or situation which prevents that party from performing the contract. Provided the clause has been drafted wide enough to cover the Covid 19 pandemic you should be able to rely upon this clause.
It is important that you review your contracts for these force majeure clauses and that appropriate notices are sent out to the other party in order to be able to rely upon this clause to protect your business now and in the future.
Where there isn’t a written contract but say orders placed with you and accepted by you prior to the Government measures can’t now be performed, those businesses might be able to rely upon the legal doctrine of frustration. This law allows a party to be forgiven for a breach of a legal obligation in circumstances where their ability to perform has been ‘frustrated’ by the pandemic lockdown measures imposed by the government. Therefore even for those businesses who do not have a written contract, the law may still help to protect your business. To say a contract has been frustrated you must however prove how it has been frustrated and this will ultimately come down to the impact which the Government’s measures to contain and tackle the pandemic have had on your business.