Coronavirus – Part 2 – The Impact on Contractual Obligations

This unprecedented outbreak has left all of us with questions but also with worry as to how we maintain our contractual obligations or even dealing with cancellations. The disruptions have understandably left people unsure whether they are in breach of a contract or feeling that a third party is taking advantage of the pandemic to get out of a contract.

In its essence, a contract under English law when considering each parties obligation to adhere to the contract are absolute. This suggests that if you are in contract with another party and they are affected by the outbreak of coronavirus then this does not mean that they are any less obliged to perform its obligations and in turn will be in breach if they fail to uphold those obligations. However, as with everything, there are some exceptions which would remove the party to uphold its obligations and will require a detailed look at the contract in question.

Many people have heard or seen a clause in a contract which refers to the term ‘Force Majeure’ but are unsure what it means or how this will affect their requirements for their ongoing performance to adhere to the contract. Force Majeure refers to unforeseeable circumstance that prevent someone from fulfilling its duties (such as duties to a contract). It is a common clause in most contracts and is very rarely relied upon.

It may be that the outbreak of coronavirus as a ‘pandemic’ is covered in the general wording of the clause and would afford you protection from not being able to perform your contractual obligations. However, our clients are contacting us for clarification on their stance because on a cursory look at their contracts it is not clear. The first step is to outline the causation and how this has been established. This is to show how the outbreak has delayed your ability to fulfil your obligations to the contract. The second point to raise is whether the confusion is down to the wording itself such as using the word ‘reasonable’ which is equally common. This word can be tricky to establish grounds that relate to your contract and obligations that have been hindered. Although, comparisons can be made between other outbreaks over the years and how the courts have dealt with this.

You will also have to show what you have done to mitigate and do what you can to attempt to continue your contractual performance. This is a difficult thing to show in the current circumstances because the although you may be willing to take reasonable steps, you are also being told to stay at home etc and could wholly prevent you from this. Have a think though and be inventive because you may find that you can help yourself should it become a contentious dispute in the long run.

Another thing to consider from your contract is whether you are obliged to follow certain notice requirements and if by burying your head in the sand and doing nothing will cause you more of a headache. This could be simply by sending a written note outlining what has happened and what you have done to mitigate and what has now happened as a result etc.

Essentially, force majeure is the more probable wall that you can hide behind and will relieve you from perforce duties and in turn will ensure you can avoid any risk of the contract allowing action to be sought against you for default termination.

Finally, it is important that you do not give up or think it is the end of this contract because a simple request for an extension of time can be presented to the other party and discussion about costs and to also to consider taking the approach initially on a without prejudice basis so as to avoid any error in negotiations that can be detrimental to you should it result in proceedings for a supposed breach of contract.

We are still working and albeit at home, we are taking calls and of course are open to discussing a matter via email if you need clarification the above. Stay safe and rest assured that millions of people across the globe may have the same concerns and understanding is key to moving forward after the dust settles on this horrid virus.

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