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Coronavirus could trigger contract clauses to help businesses through pandemic

Coronavirus could trigger contract clauses to help businesses through pandemic

In the third of our blogs looking at the current challenges businesses are facing, John Clarke, Wesleyan Bank's Head of Sales, and Jeremy Parkin, Partner in the Commercial Contracts team at The Wilkes Partnership Solicitors, consider how the fulfilment of commercial contracts is currently being impacted.

The business community has broken down many barriers by supporting each other to manage the practical and financial issues which have arisen from COVID-19. However despite best efforts to continue to provide goods and services in the usual timeframes, circumstances such as staff absences due to the virus, combined with supply chain and logistical issues, make it impossible to meet contractual obligations in some instances.

Business owners are increasingly encountering problems beyond their control. Typical examples include relationships with customers being compromised due to suppliers being unable to fulfil their orders. This can have the knock-on effect of customers seeking to cancel existing agreements, or terminate contracts because of their own financial and operational difficulties.

These scenarios mean it is paramount to pre-empt and react quickly to any fluctuating situations by reviewing your contracts and understanding where you stand should problems occur. 

Once you have revised and reviewed your contract, then the first and preferable step is to negotiate practical solutions that meet the needs of both parties, this could include a temporary suspension of service or the reduction of fees.

Should you have any concerns, talk to the other party at the earliest opportunity and discuss the options for agreeing any temporary or permanent amendments to a contract or the relevant terms and conditions. If changes are made, be sure to confirm the details in writing as this will prevent future misunderstandings by either party.

If the problems prove to be insurmountable and as a direct result of COVID-19, then consider invoking the 'Force Majeure' provision, if the contract has one. This clause addresses circumstances which are beyond your reasonable control and make it impossible or impractical to deliver what is expected, potentially freeing you from fulfilling contractual obligations. 

The 'Force Majeure' clause may cover exceptional events, such as pandemics or where a government or other authorities impose restrictions. But the clause cannot be used if the impact of the pandemic is just making things more difficult or expensive - here any 'non-performance' could open the possibility of a claim for damages from the other party.

Before using the 'Force Majeure' provision, the expectation is that all reasonable steps have been already been taken to meet the obligations under the contract.

It is possible that there will be a clause within 'Force Majeure' which states that when the conditions continue beyond the short-term - say 30 or 90 days - then either one or both parties terminate the contract without any liabilities. If you reach this stage of wanting to use 'Force Majeure', seek legal advice to ensure that any action you take is fully legally compliant.

Where no 'Force Majeure' clause is written into the contract, then the principle of 'Frustration' could potentially be considered in certain circumstances. It can be more problematical to prove and is used only in the most exceptional cases, such as when it is and will remain completely impossible to fulfil what is required or when performance would be fundamentally different to the original contract.
    
Jeremy Parkin, Partner in the Commercial Contracts team at The Wilkes Partnership Solicitors comments:

"One of the most important things you can do in the current circumstances is to check what terms and conditions apply to your contracts and understand what that agreement means for you.

"If the position is reached where the 'Force Majeure' clause is worth pursuing don't use it as an excuse to sit back and rely on it. You need to be able to provide evidence that you have proactively taken all reasonable steps to meet the terms of the contract."

The Wilkes Partnership has launched a COVID-19 resource centre to provide commentary on the issues that are particularly relevant for businesses in these uncertain times. This includes a short video on the above, which can be found here.

It is also offering a no-cost, no-obligation initial consultation to help you understand any issues facing you or your firm, so you can map out the best route forward. To take advantage of this offer call 0121 733 4303.

If you do have any contract or terms and conditions related questions, or a topic you would like to hear about, please contact Jeremy Parkin - jparkin@wilkes.co.uk.


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