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COVID 19: Commercial Contracts


Many businesses rely on their contracts to protect them as they conduct their day to day business. Once these are in place they are often overlooked as a document that needs reviewing to keep abreast of legal changes.

Covid- 19 has affected business in a way none of us could have predicted and even now nearly two years since the outbreak it remains an unpredictable force to be grappled with.

The government has put in place many measures to steady trade and the economy, however contract disputes will undoubtedly unfold as businesses continue to struggle to meet their obligations as a result of Covid-19.

A well drafted contract may well deal with pandemics to enable both sides to work out a plan that places neither of them in breach of contract. Often known as Force Majeure clauses (a French term) this typically excuses a party from contractual non- performance if caused by an event outside of their control. They often either suspend the contract or allow for termination but most importantly they protect the defaulting party from being sued for damages for breach of contract when it is not their fault.

Some argue that events must be unforeseeable to be afforded the protection of a Force Majeure clause. As we encounter mutations, variants and fresh outbreaks consider inserting wording in your contracts to enable these “new” disruptions to be included as a force majeure event even though they may be considered foreseeable. Whilst Covid-19 itself is now a foreseeable event the extent and type of chaos it causes could still be unknown particularly in the light of the evolving medical and political responses around the world. None of us really know when life will get back to normal or what steps will be necessary to allow trading conditions to be certain.

Other practical steps to consider:

  • Take a look at your contracts. Do they have force majeure clauses?
  • Is Covid -19 in all its various forms included.
  • Is government intervention the reason you can’t honour your contractual commitment rather than Covid- 19. Is this covered in the force majeure clause?
  • Is there a clear link between Covid-19 and the inability to perform a contract? You much be able to prove cause and effect.  
  • What are the notice requirements if you have to invoke the clause? Make sure you follow them.
  • In new contracts consider negotiating a specific Covid 19 clause setting out a mechanism to   allocate risk if the contract can’t be performed.
  • Keep a record of the dates contracts are entered into so that it will be clear whether you should have foreseen the impact of Covid-19 on the contract at the time of performance. The date when knowledge could be assumed is important.
  • Be aware that government guidance and the law keeps changing which may bring about further effects. This is likely to be the case for some time.
  • Take all commercially reasonable steps to try and perform the contracts and make a note of what has been done and what is impossible and why. As a general rule performance that is more difficult or expensive is not a reason to suspend the contract.
  • Should you manage to renegotiate the terms of an existing contract around Covid-19 and its affects, put any changes in writing as a variation to the contract.
  • Consider seeking advice to review your contracts to see if you are covered.  There may well be other clauses that could assist you, such as termination rights or rights to switch suppliers.

 

Our experienced Business Services Team can advise you on the provisions of contracts and the impact of Covid -19. For further advice please contact Justine Lowe on Justine.Lowe@smesolicitors or 01905 727223.

Added: 16 Dec 2021 14:29


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