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The Impact of COVID-19 on Commercial Contracts

In these uncertain times, the spread of coronavirus (COVID-19) is disrupting everyday business activity.

What does this mean from a legal perspective and specifically how does the impact of COVID-19 affect commercial contracts?

First and foremost, is your commercial agreement a written contract and does it contain a force majeure clause?

 

Force Majeure Clauses

A force majeure clause within a commercial contract, if triggered, can suspend,  and possibly end, the performance of obligations where a party is prevented from performing by events outside its control.

Here are three areas we would suggest you should consider if:

• You have entered into a contract that has a force majeure clause
• You are concerned or seeking to rely on it, as a result of the coronavirus pandemic.

 

Is Coronavirus a trigger event in a Force Majeure clause?

When reviewing a force majeure clause in a commercial contract, the first step will be to understand whether coronavirus would constitute a “trigger event.”

If it refers to a fixed category of events, then unless an epidemic or pandemic is specified, it is most likely that the coronavirus will not constitute a trigger for a force majeure clause.

Alternatively, if the clause has a wider application in referring to an “act of God” or “any event outside of the reasonable control of the parties”, you could argue that coronavirus would constitute a force majeure to the contract.

 

If Coronavirus is a trigger event, does it affect the parties’ ability to perform their obligations?

If you can establish that the coronavirus falls within the scope of the force majeure clause, you will then need to consider the associated impact it has on the performance of obligations within the commercial contract.

In other words, you will need to demonstrate a link between the coronavirus and the prevention of performance of a party’s obligations for the force majeure clause to be relied upon.

Again, this will very much depend on the wording of the specific force majeure clause within the contract and the facts and circumstances that the parties find themselves in.

 

Comply with any formalities set out in the Force Majeure clause

You should ensure that the formalities required under the contract have properly been taken into account by providing a written notice to any other parties entered into the contract.

It would be good practice for you to include evidence and possibly any records you may have with the notice to strengthen your argument that a contract has been frustrated through applying the force majeure clause.

 

No Force Majeure Clause

It’s important to bear in mind that if your commercial contract has no force majeure clause, it is unlikely that either party will be able to escape their obligations under the contract due to impact of the coronavirus.

 

Conclusions

If this is relevant to your business, we strongly recommend that you keep up-to-date with government guidance. It could very well be possible that if a government mandate is imposed upon us, it may become the catalyst that triggers many force majeure clauses within a variety of commercial contracts.

Regardless of whether your contract has a force majeure clause, you should communicate with your counter-party to the contract as it’s highly likely that you will wish to continue to trade with them when normality resumes.

 

For more information on invoking force majeure clauses in commercial contracts, please contact commercial contract disputes lawyer Gordon Monaghan on 0115 9 100 248 or click here to send an email.

For advice on creating or updating a commercial contract, please contact corporate and commercial lawyer Peter Flowerday on 0115 9 101 316 or click here to send an email.

Posted on March 19, 2020

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