Coronavirus and Contracts

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11 March, 2020

Coronavirus and Contracts

Many of our manufacturing clients have suppliers in China or Italy and with the enforced lockdown in those areas due to Covid - 19 there is likely to be an impact more locally regardless of the effects of the virus here. Once the medical emergency is over there is likely to be a fallout relating to delays or inability to complete supply contracts.

To avoid a dispute arising it may be possible to re-negotiate the terms of a supply contract. If an agreement is reached then the new terms should be confirmed in writing - a quick exchange of emails confirming the variation to the contract will usually suffice unless there is a term in the original contract which provides for variation in a different way in which case the parties should comply with that term.

Given the current level of uncertainty, particularly surrounding the longevity of the impact of Covid - 19, reaching agreement to vary a supply contract may be difficult.

In the event of a dispute the first step will be to consider what was agreed when the parties entered into the contract. Standard terms and conditions often contain a "force majeure" clause which may excuse an inability to deliver what was agreed if the events stated in the clause actually occur. The events usually referred to are strikes, wars and acts of god and there is usually a catch all of anything else outside the control of the parties. The Courts interpret these clauses strictly and will only allow reliance on the clause if it is the sole cause for the failure to deliver what was agreed. A force majeure clause cannot be relied on because the contract has become more difficult or expensive to fulfil.

If there is no "force majeure" clause to rely on then it may be possible to argue that as it is no longer possible to deliver what was agreed the contract has been "frustrated". This is a long-established principle but again, the Courts have been reluctant to allow a party to rely on this to excuse non or part performance of a contract. However, this may be revisited in this unprecedented global emergency.

For more information contact Claire Edbury in our Dispute Resolution department via email or phone on 0333 207 1143. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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