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What now for commercial contracts amid coronavirus crisis?

By Michael Press


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With high streets emptied during lockdown, contracts will put on added pressure

With high streets emptied during lockdown, contracts will put on added pressure

AFP via Getty Images

With high streets emptied during lockdown, contracts will put on added pressure

The uncertainty surrounding the Covid-19 pandemic has sent economic markets around the world into a state of flux, the true impact of which will remain unknown for some time.

With each passing day, businesses of all shapes and sizes operating in Northern Ireland and abroad continue to deal with an unprecedented and increasing level of restrictions which puts into question their ability to perform the duties and obligations imposed on them in their commercial contracts.

In Northern Ireland, a contracting party must perform its contractual obligations as set out in the contract. This obligation is sacrosanct under contract law (save for a couple of exceptions) and failure to do so will be considered an actionable breach of that contract.

This obligation will not be discharged unless the contract expressly permits, even if a contracting party is prevented from performing its contractual obligations by the current Covid-19 pandemic.

It is therefore vital for a business to identify all contractual relationships they are currently a party to. This may range from contracts with suppliers and customers to anyone at any level of the supply chain.

Once identified, the contracts should then be reviewed to see if there are any rights or protections available to the contracting parties.

It would also be beneficial for the contracting parties to engage in dialogue at an early stage to discuss the current and potential impact the current restrictions will have on their relationship.

Many contracts will contain what is called a 'force majeure' clause. This is a clause which excuses one or both contracting parties from performance of a contract in the circumstances whereby they are unable to do so due to the occurrence of certain events.

As there is no statutory or common law principle of force majeure, it must be explicitly provided for within a contract.

The availability of a force majeure clause to excuse a party from performance of its contractual obligations due to the Covid-19 pandemic will turn on the precise wording of the clause.

Each clause should be considered on a case-by-case basis as each contract may provide for different circumstances that constitute a force majeure event. With the Covid-19 pandemic in mind, key terms to look out for in a force majeure clause are "disease", "epidemic", "pandemic" or "act of government".

In the absence of a force majeure clause, a contracting party may rely on the doctrine of frustration to excuse it from performance of its contractual obligations.

This would allow a contracting party to cease performance of its contractual duties on the basis that it has become impossible, or illegal, to perform the contract.

While case law would suggest that it is difficult to bring a claim under the doctrine of frustration, a contracting party may be successful if their specific circumstances demonstrate that the contract is frustrated (eg state-imposed lockdown on their business meaning they do not have the staff available to perform the contract).

Sadly, there is no 'quick fix' to the current difficulties facing businesses in Northern Ireland.

It is for this reason that Northern Irish businesses should act now to consider the short and long-term impact of the Covid-19 pandemic on their contractual relationships.

Michael Press is a solicitor in the commercial department at Worthingtons Solicitors, Belfast with experience in commercial contracts. He can be contacted at michaelp@worthingtonslaw.co.uk or on 028 9043 4015.

Belfast Telegraph