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Contracts and Covid-19 – Force Majeure or Frustration explained.

6th April 2020 by Robin Watson

Categories: Covid-19, What's New?
Tags: , , , ,

Covid-19 has had a profound effect on all of our personal and business lives, and we are likely to feel the ramifications for some time into the future. If you have any pre-existing contracts or agreements already in place that have been impacted by the pandemic, and are concerned about where you now stand with them, how the relationship moves forward or if anything needs to be done to minimise any adverse future consequences, Laceys dedicated lawyers can help you through the challenges that lie ahead.

Please find below some advice on contracts and Covid-19, however with events unfolding and changing on a daily basis we would highly recommend you contact us to talk through your query so we can provide the most up to date information.

Contracts

As with all agreements, the starting point is to review the contract in question to establish whether the issue at hand is dealt with in the contract itself.  The disruption caused by Covid-19 is most likely to be covered by a “Force Majeure” clause.

Force Majeure

Parties to a contract are bound by its terms and are expected to perform their respective sides of the bargain.  If one party fails to perform its obligations, it is likely to be liable to the other party for a breach of the contract.

Some contracts contain Force Majeure clauses, which are a mechanism to excuse one or both parties performance of their contractual obligations in the event that certain specified events which are beyond the control of the parties prevent the contract from being performed.

All Force Majeure clauses are different and therefore need to be examined to determine whether the Covid-19 pandemic is covered in your contract. Given the recent and rapid on-set of the virus this is unlikely so;

  • Is a global pandemic something that could be included in any broader definitions in the contract?
  • Can you establish a link between Covid-19 and the inability to perform the contract?
  • Is it possible to perform the substantial terms of the contract in a different way?

If a Force Majeure event can be established then it is likely that performance of the contract will be excused, or delayed.  This however will likely be dependent on the terms of the contract as a whole, and it is therefore important to consider the situation globally, and not just the Force Majeure provisions.

Frustration

Many contracts are not in writing or simply do not contain Force Majeure provisions, so what happens then? In these circumstances the doctrine of Frustration may apply.

This means that a contract may be discharged on the ground of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil the contract, or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract.

Discharge of contract denotes the contract is terminated, as if it never existed, although a person who has performed part of the contract prior to the frustrating event is entitled to be paid for that element of the contract.

It seems likely that the sweeping changes and restrictions on movement we are currently experiencing are likely to render the performance of many contracts impossible, and therefore possibly frustrated.  The interpretation will be very much dependent on the facts and nature of each contract, and must be considered carefully.

Insurance

Finally, you should also review any insurance you may have which covers any disruption which you are experiencing.  We are happy to review any policy queries which you may have, or alternatively your insurance broker will be able to assist.

If you need any further advice on contracts and Covid-19 then please contact our team today and we will be happy to help.

 

Robin Watson

Partner — Employment

Direct dial: 01202 377872

Email

“Robin provided excellent and honest support during an incredibly difficult time. Robin's advice and knowledge were exceptional as was the compassion shown towards me throughout this process.”

Christine Stafford

Robin studied law at the University of Southampton before achieving Distinction in a postgraduate law diploma at Bournemouth University in 2011 and being awarded the Dorset Magistrates’ Association Excellence in Advocacy Award.

Robin qualified as a solicitor with Laceys in 2011, and is now one of Laceys partners, specialising in employment law advising employers, HR Directors and managers on all aspects of complex employment law and day-to-day HR issues.

In addition, Robin completed a demanding course and examination process and qualified as a Solicitor-Advocate early on in his career. This entitles Robin to appear in all civil courts and enhances the service he can provide to clients.

Robin is able to bring his previous experience in management outside of the law and also, understands the real demands and issues involved in HR. Robin takes responsibility for the HR of Laceys which includes circa. 100 employees and so has experienced what it is really like to deal with frontline HR issues and his clients genuinely benefit from that. It enables Robin to give practical and clear advice based on real experience, as well as utilising his legal knowledge and experience.

Robin has advised and represented a national hotel and restaurant group concerning multiple redundancies and general ongoing employment law/HR support and also recently advised and represented a financial services organisation in a High Court contractual dispute.

Robin has previously advised a local charity regarding potential pay claims and represented a senior charity executive.

As part of his service Robin likes to provide training to his clients and their HR teams.

Away from work Robin enjoys cycling, cooking and eating. Lately, Robin has (again) started sketching and is trying to convince himself that he has a talent!

To find out more about Robin becoming Partner and why he chose to specialise in Employment law click here;

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