06 April, 2020
Businesses across all industries are facing enormous disruption and uncertainty due to COVID-19. It is becoming increasingly apparent that the current restrictions on commercial activity and individuals' rights of movement may be in place for several months. As a result, attention is turning to whether businesses and their suppliers, customers and commercial partners can continue to perform their contractual obligations, and if not what consequences flow from that.
We have set out below our top tips for businesses when reviewing and managing their contracts:
Early and frequent communication with contracting partners is key to understanding how they have been affected by the restrictions and whether this will impact their ability to perform their obligations under the contract. Likewise, long-standing contracting partners may be more likely to agree a mutually acceptable way forward if they are informed early of any difficulties you are facing. Even if your business dealings have not changed to date, working with your business partners to plan for eventualities which COVID-19 may present will help you act quicker should they arise. Continue to monitor the impact of COVID-19 and keep your plans under review.
2. Review contracts
It is crucial to review the terms of your business-critical contracts so that you understand your rights and obligations, and those of your counterparties, to ensure that you are planning effectively. Consider the contractual commitment; are the obligations absolute or contingent on a certain event such as submitting a purchase order? Is there a force majeure clause? See our article on force majeure for more information on whether a force majeure clause can protect your position if you are unable to perform your contractual obligations. If your costs are rising, is there a price adjustment mechanism? Do you need more time to fulfil an order? Check whether any flexibility is permitted by the contract.
3. Keep written records
Keep full and accurate records of all discussions and negotiations with contracting partners. Correspondence with your counterparty should be drafted carefully and expressed to be on a "without prejudice" basis until formal agreement is reached. If you are intending to formally vary the contract, you should ensure that any contractual requirements concerning variations are complied with. If you cannot reach agreement, the success of any future claim will involve persuading the court that you are right based on evidence. Whilst disputes may only arise once the crisis has abated, it will be difficult to recall what steps were taken without contemporaneous records, therefore it is essential to make notes of conversations and retain emails.
4. Mitigate losses
Under English law, a claimant is under a duty to mitigate its losses. The essence of this principle is that if the claimant unreasonably fails to mitigate (avoid or reduce) its loss, or unreasonably acts so as to increase its loss, the law treats those actions as having broken the chain of causation and measures damages as if the claimant had instead acted reasonably. Therefore, businesses which are subject to a breach of contract must ensure that they are taking reasonable steps to limit losses otherwise such losses may not be recoverable. This may include negotiating with other contracting partners or trying to find alterative suppliers.
Our team can provide you with advice on and assistance with understanding your position under existing contractual arrangements in light of COVID-19, or reviewing and updating your contracts to ensure their suitability.
For more information contact John Pickervance in our Commercial department via email or phone on 0333 207 1134. Alternatively send any question through to Forbes Solicitors via our online Contact Form.