The impact of coronavirus on every market sector is just beginning to be felt. And it’s anyone’s guess what the true extent of damage to commerce and the economy will be. At Nath Solicitors in London, we are continuing to provide specialist contractual advice. By working closely with our small and medium-sized business clients, we minimise disruption and help them begin to forge long-term plans for managing their legal obligations in the wake of the pandemic. One of the chief concerns at present is how to deal with contracts a business is party to. Must all obligations continue to be fulfilled? Or are there ways contractual responsibilities can be avoided or their fulfilment delayed. Here we look at some of the key issues around commercial contracts and coronavirus.
Do I Have An Obligation To Perform My Contractual Obligations?
In the context of a worldwide pandemic, it’s clear that the performance of the terms of a contract might become more difficult. But under English law that won’t normally be enough to enable a party to a contract to walk away from its obligations.
The requirement for ongoing performance in English law is normally one that’s absolute – so a failure to perform will leave the defaulting party liable in damages down the line. However there are two situations in which performance may not be obligatory: firstly, where there is a force majeure clause that can be validly invoked and secondly where it can be established that the contract has been frustrated.
We’ll look at these in turn.
What Is Force Majeure?
‘Force majeure’ is essentially an unforeseeable event that prevents one party from fulfilling its contractual obligations. Most contracts will contain a force majeure clause as part of the boilerplate clauses. The question of whether or not you can rely on force majeure will depend on the interpretation of the specific contractual clause. Factors to consider include:
- Is coronavirus the sort of event that’s anticipated by the force majeure clause?
- Does the contract refer to government interference as a justification to invoke the force majeure clause? It could be that some of the recent government initiatives, including the closure of certain businesses, might enable the force majeure clause to be used
- Some force majeure clauses will exclude events that are reasonably foreseeable. It could potentially be argued that a global pandemic such as we are experiencing was foreseeable. Indeed many force majeure clauses do now refer to disease outbreak
- Is the party seeking to rely on force majeure required to minimise the impact on the other parties to the contract?
- Can the party seeking to rely on force majeure demonstrate that its inability to perform its obligations was caused directly by the force majeure event?
What About Contractual Frustration?
If there’s no force majeure clause a party can seek to rely in the common law principle of frustration. Where there is a change in circumstances so great that it’s impossible to perform the contract, a party can be discharged from its obligations. It’s important to note that establishing grounds for frustration is difficult and we believe coronavirus may not be a sufficient ground to rely in in many cases.
Am I Insured?
It is essential to check any insurance you have in relation to your contracts and to update it if possible. As the fallout from coronavirus increases it will become more and more difficult to obtain insurance to cover losses, including contractual losses that are attributable to the pandemic.
How We Can Help
We know that every commercial organisation has huge concerns at this time. At Nath Solicitors we have been able to act quickly to help clients deal with the immediate impact of coronavirus on their businesses. Whether it’s advice on the latest government measures to combat the disease or guidance on contracts or employment issues our set-up means we can act responsively and proactively to provide the legal support you need.
Please contact Nath Solicitors on 44 (0) 203 670 5540 or use the covid19 emergency contact form to get in touch online.
