Covid-19 and your contractual obligations – where do you stand?

The outbreak of Coronavirus, Covid-19, is an ongoing epidemic and continues to hit headlines across the world. Where does this leave you, as a business, in respect of your contractual obligations?

Covid-19 will no doubt have caused major disruption to various business arrangements as many businesses operating in affected countries have had to either suspend operations or find alternative means of complying with their contractual obligations.

The English law position

Unless one of the exceptions below apply, you must continue to perform your contractual obligations, otherwise you risk being in breach and potentially liable under the contract (consider your liability under the contract which could potentially be unlimited, depending on your bargaining strength upon contract formation). If your business finds itself in the unfortunate position of being unable to commit to its contractual obligations as a result of Covid-19, it may be worth checking whether there is a suitably drafted force majeure clause in the contract, or whether the contract has been frustrated (discussed below).

Force Majeure

Force majeure clauses usually set out how the parties' obligations are affected by an event that affects one of the party's ability to perform its obligations under the contract (outside of its control). A well-drafted force majeure clause may allow you to suspend performance of your obligations until such time that you are able to continue performing your obligations, or allow termination of the contract altogether. For contracts which have been in place for a number of years (or in any event, prior to the outbreak of Covid-19), it is unlikely that Covid-19 will have been listed as a specific force majeure event. Accordingly it is worth checking whether Covid-19 is a type of event that falls generically under the wording of the force majeure clause.

Usually, the party that is seeking to rely on a force majeure clause must establish that the force majeure event has prevented the party from performing its obligations under the contract.

Frustration

In the absence of a force majeure clause a party may be able to argue that the contract has been 'frustrated'. This allows for a party to be discharged from performance of its contractual obligations if a change in circumstances makes it physically or commercially impossible to carry out its obligations under the contract, or would render performance radically different. Note however that claiming the contract has been frustrated is very difficult.

If you would like to discuss your options, please do not hesitate to contact  James Sarjantson on 0113 201 0407 respectively.