Covid 19 and contractual obligations

The wonders of modern technology allow some of us to work from home almost as easily as we can work from the office however most businesses are going to be severely disrupted by the ongoing epidemic. In addition to concerns about the well being of staff and collaborators they will be worried about what will happen if suppliers cannot supply or service providers carry out promised services as well as being fearful of being sued themselves if staff or material shortages mean that they cannot fulfil their own contractual obligations to others.

Many contracts contain a force majeure clause which excuses a party from liability if it cannot perform the contract due to circumstances beyond its control and will often permit termination if the unexpected circumstances continue beyond a certain period of time. The wording of these clauses vary considerably from contract to contract so you need to read them carefully to see whether your particular circumstance is covered and what remedy is given.  The choice of law clause will also be important as these clauses are usually much more narrowly interpreted in common law countries such as England and the US than in civil law countries such as continental Europe where the courts are more likely to consider the overall intentions of the parties. 
Where there is no force majeure clause in the contract you need to consider your position in general law.  In civil jurisdictions a force majeure clause may be implied but what it excuses and the remedies available will vary from country to country.

In common law jurisdictions you are probably looking at doctrines of impossibility or frustration.  These tend to have quite a high bar and you would have to be looking at something that truly was impossible eg a singer booked to perform at a venue and the venue is closed by government order would be covered.
Regardless of where you are however that the contract has become more difficult or more expensive to perform will not normally excuse performance.

It is important to look at the whole contract as there may be other clauses that can help. Your contract may also allow for a party to subcontract – could that be a way around your current problem?  Do you have an option to terminate?

Whether or not you think you are covered in law however is generally only part of the picture.  You still have a business to run.  For that reason we recommend that you do not wait until the situation has become critical but that you get in touch with your suppliers or customers now and discuss various scenarios that might occur and how they might be handled.  This will allow you to craft a solution that best meets both parties needs and mitigates the overall damage. We are all going to need each other’s cooperation so being flexible and not simply reciting our legal rights is going to be key not just to getting through the current emergency but also to ensuring that we come out the other end with the strong relationships that will allow us to recover and rebuild.

If you feel that you are going to need to change the previously agreed contractual terms it is important that you follow the process set out in the original contract to do this – often it must be in writing signed by both parties and refer to the original agreement.  If you don’t do this you may face claims later that the contract was not varied and that you are bound by the original conditions.  If you need help with doing this or would like further advice please get in touch at patricia@bonaccord.law