Is Coronavirus Affecting Your Commercial Contracts?

by Startacus Admin

How will coronavirus affect your commercial contracts? We chatted to Rana Chatterjee, from Harper James Solicitors to get expert advice.

We’re just beginning to see the impact that the coronavirus pandemic will have on startups and small businesses across the UK, not to mention globally.

The guidelines put in place by the government to limit non-essential travel and encourage social distancing is already affecting supply chains, making it difficult for business owners to adapt and fearful for the weeks ahead.

If you or your suppliers are no longer able to carry out contractual obligations over the coming weeks, you may be considering what your next steps are, and whether this could lead to costly legal action.

Now is the time to check the terms of your contracts with suppliers to make sure you’re prepared for any eventuality, so that you can protect yourself and your business as effectively as possible.

But what are your next steps?

We talked to Commercial Solicitor, Rana Chatterjee, from Harper James Solicitors, to get expert advice on what to look out for in relation to your commercial contracts.

If you or a supplier cannot fulfil a contractual obligation due to the impact of coronavirus, what are your rights and liabilities?

Your rights and liabilities will always hinge on the words used in the agreement itself. It’s not uncommon for a business to acquire a different supply of goods or services and subsequently have the original supplier meet the costs incurred. Often, the failure to carry out a contractual obligation will result in the other party ending the contract and potentially claiming damages related to the default.

Could a force majeure clause in your contract help?

Force majeure clauses are more frequently being adapted in contracts to include disease outbreaks and the fallout that may come with it. If your supply chain or contractual obligations are severely interrupted by the spread of coronavirus in the coming weeks, you could be protected under a force majeure clause if your contract stipulates this. The main thing to take note of here is that the business who has been unable to carry out their contractual obligation needs to demonstrate that it was stopped from doing so due to the coronavirus outbreak.

What about contractual frustration?

Unfortunately, contractual frustration is unlikely to apply. For contractual frustration to apply, the business would need to demonstrate that their contractual obligations were impossible to carry out due to an essential element of the contract being destroyed. For example, if a key person related to the contract were to become seriously ill or die before their contractual obligations were carried out, then this could meet the requirements of contractual frustration. However, it is more likely that this scenario would prompt the termination of the contract completely.

Will you be protected by your insurance?

With the outbreak of COVID-19 being such an unusual event, it is worth checking whether your insurance will cover this in relation to your contractual obligations, and that of your suppliers. Get in touch with your insurance provider as soon as possible to get the confirmation you need and consider taking out extra protection to cover your business for the coming weeks and months. As the outbreak continues, it’s likely that insurance companies will be less likely to offer the same products and protection, but this may depend on how the current situation unfolds.

What can you do to protect your business?

Take a thorough look at your existing commercial relationships and assess how the coronavirus outbreak could affect their capacity to run their business. You’ll also need to review commercial contracts that you already have in place as a precautionary measure.

Getting a clear understanding of how your contracts would work in this current situation will help you prepare for the possibility that formal notices and negotiations could happen if you and your supply chain are severely affected by the outbreak.

To prepare in more detail, you should also:

• Review any force majeure clauses if they are included in any of your contracts to assess whether any breaches will be covered by the clause
• Get in touch with your suppliers and any other organisations that may be relevant to the contract to discuss the likelihood of business as usual or to discuss what next steps are – this could be renegotiation of the terms of contract
• Don’t simply rely on a force majeure clause if there is one present in your contract – get legal advice from commercial solicitors who specialise in this area
• Once you have put these measures in place, it’s also worth looking at how you put together future contracts, so that you are protected if a pandemic scenario were to reoccur in the future

As the current situation continues to rapidly evolve, you may be concerned for your business and what may happen further down the line.

The team at Harper James Solicitors have produced a hub where you can access business advice during the coronavirus outbreak. They have also put in place a quick response team who are available if you need any legal advice on your existing contracts, and precautionary measures you should be putting in place now to protect your business.

 

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• #legals
• #commercial contracts
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• #coronavirus
• #covid 19

Published on: 18th March 2020