March 10, 2020

COVID-19: Implications for Businesses

Written by Nia Godsmark

While the potential employment and health issues associated with the current Coronavirus (a.k.a. COVID-19) outbreak are gaining a reasonable amount of attention, there are also wider commercial implications that businesses of all sizes need to consider.

Contractual arrangements are increasingly likely to be impacted upon by the spread of Coronavirus. What happens, for example, if your key supplier simply cannot get the goods to you, or worse still, has sent the goods but you have not received them?

What happens if you cannot perform a contract because of staff or geographic areas being quarantined? There are likely to be financial losses as a result of the disruption, but who should foot the bill?

Where a party cannot perform its contractual obligations, there is a real danger that they will become liable for breach of contract.

Two ways that this may be avoided are force majeure and frustration.

Force majeure is a term that may be incorporated into the contract and deals with how the parties’ obligations are affected when one of the parties cannot perform the original contract. Whilst this term may offer some options to the parties involved, it is not necessarily going to apply, in certain situations.

Does the definition of force majeure in your contract include an epidemic?

What if it falls short of an epidemic, or it is thought that the parties could have taken reasonable steps to deal with the situation so that it could have been avoided?

Don’t have a force majeure term? All is not lost; you could potentially rely on the common law principle of frustration.

Frustration refers to the situation where one party to the contract seeks to set aside the contract as it has become commercially impossible to perform. As this would mean that the other party cannot then claim breach of contract, there is a very high threshold to be reached for the court to accept that the contract is truly frustrated, simply being harder or more costly is not sufficient to claim frustration.

The implications of Coronavirus are likely to go far beyond the immediate medical care requirements and businesses would be wise to consider their contractual relationships and how they are going to tackle these disturbances in trade which are almost inevitable during this uncertain time.  

For expert advice on this or similar matters, call Nia Godsmark in our company and commercial team on 01792 450010 or email [email protected]