“I can’t keep my side of a contract because of COVID-19 – what can I do?”
17th Mar 2020
If you are unable to meet your contractual obligations because of COVID19, whether regarding payments or other obligations, our expert Dispute Resolution Team is here to help.
At this difficult time, everyone’s priority must be the health of themselves, loved ones, work colleagues and the public at large. Governments across the world have adopted differing degrees of policies to curb the spread of COVID-19, also known as the Coronavirus disease. To date, the UK government has adopted relatively less stringent measures. However, more stringent measures are inevitable.
Whilst the health of the public is more important, it is also extremely important to limit the impact COVID-19 has on business. A downturn in all sectors is inevitable and so businesses should ensure they consider all their options when trying to stay profitable or, indeed, afloat.
Most businesses, and some individuals, are engaged in supply contracts and service contracts. Many of these contracts contain a “Force Majeure” clause, which is French for “Superior Force”. As this suggests, these clauses allow a party to avoid their contractual obligations if events outside of their control mean they cannot perform the contract.
In most European jurisdictions, their civil law implies a Force Majeure clause into contracts. In the United Kingdom, no such right is implied and therefore the specific Force Majeure clause must be examined to determine if it can be relied upon. If disease is not excluded then Force Majeure may apply. It is also important to establish that you would be willing to carry out the contract, but are unable to carry it out, because of COVID-19. We anticipate most businesses will argue on the basis of a reduction in turnover, because of COVID-19, so they cannot meet their contractual obligations. Potential outcomes are:
- The right to terminate the contract;
- An extension of time to fulfil obligations;
- A suspension of obligations;
- A renegotiation of obligations.
As a result of the unprecedented nature of the current circumstances, there is no case law on what approach the courts will take. However, we are expecting guidance to be published in the near future by both the courts and large business and insurer organisations.
Businesses may therefore use the Force Majeure clause as leverage to avoid insolvency, during these difficult times.
We offer a fixed fee service to assist you in relying upon your Force Majeure clause and negotiating on your behalf generally. You can contact our Dispute Resolution Team on 0161 928 3848 or mch@mchaleandco.co.uk.
