With growing concerns over the increasing possibility of an isolation period, reduction in staff for a period of time and supply-chain concerns, you may be worried about the impact on your business.
Will you be able to carry out your services to customers? Perhaps you are concerned about suppliers not performing their obligations to you? Maybe your biggest concern is non-payment and loss of revenue?
This bite-size read will guide you through the steps you should take to ensure you are ready for the commercial impact of Covid-19.
Am I covered by insurance?
Check the terms of your insurance policy. Does your policy cover you for business interruption in the event of a pandemic? Perhaps you have supply chain cover? Do you have business continuity cover? In any event, you need to read the small print carefully to see if any loss of revenue will be covered by your insurer. Commence early discussions with your insurers to assess your position, so that you can plan for business continuity.
Are there strict obligations to supply/deliver?
Whether you are supplying or receiving goods/services, you should check your contractual terms to see if there are strict obligations with respect to delivering the goods/services and payment. Is there the option to delay or be interrupted without being in breach of the contract? Check the wording of the terms to see if there is an absolute obligation or reference to timing which could trigger a breach of the agreement.
What is a force majeure clause?
A force majeure clause is often found in legal terms and allows the parties to be excused from performing their obligations in the contract while certain events occur. The clause needs to be reviewed carefully to determine whether the Covid-19 outbreak and any associated government decision is covered. The clause normally describes which ‘acts’, ‘events’ or ‘occurrences’ are covered. Some clauses are drafted quite narrowly and may not be applicable, while others can be drafted widely and cover a multitude of acts, events and occurrences.
What about consumer rights?
Even where you are able to rely on a force majeure clause you must always be fair and reasonable to consumers. Any hardship or detriment suffered by consumers as a result of any action you take under your force majeure clause, or other provisions in your terms and conditions, may be in breach of consumer rights legislation. Think about compromises to maintain goodwill and not drive future customers away. Can you perhaps offer a change in timings or a reduction in fees?
Am I bound to commercial transactions with other businesses?
You may have a relationship with another business that you no longer wish to be bound to, for example – it may no longer be commercially viable. You should check the terms of that agreement to see if ‘material adverse change’ is an option that allows a party to terminate. The changes caused by the Covid-19 virus on the world could allow you to terminate the relationship and enable you to be relieved of your obligations. If not, then you may need to rely on the force majeure clause, if possible.
Are there any other options?
Where there is no force majeure clause, you may be able to rely on the doctrine of frustration. This is where the parties can set aside the agreement saying that it has been frustrated due to events occurring that make it impossible for the contract to be performed. In real terms, you would no longer be bound to carry out your obligations under the terms. Legal advice should be sought before attempting to rely on this remedy, as the threshold for proving frustration has occurred is particularly high and it is rare for a party to succeed with this argument.
What are the remedies for breach of contract?
If there is non-performance or payment under an agreement, then a careful review of the terms will highlight the options available to you. Consider the following when reviewing:
- Can you claim the terms have been breached and sue for non-performance/payment?
- What does the liability clause say? This clause will set out what can and what cannot be recovered as losses. Are there any exclusions? Any caps on liability in place?
- Are there any indemnities in the terms? If there is a wide indemnity, then the wronged party may be able to recover more losses. This would be especially useful in a supply-chain scenario, where losses may be more significant.
- Be wary of any penalties for breach. These are sometimes unenforceable (particularly if they are not a ‘genuine pre-estimate of losses’).
- Can I terminate and end the relationship?
What about notice provisions?
Any discussion with the other party on these issues may result in some disputes that may need to be settled. Whilst trying to maintain good business relationships, you should ensure that any provisions detailing how and when notices are provided to the other side are complied with.
Please contact us if you would like any legal terms analysed, or for advice on how to handle customer and business legal relationships.