April - May Mag Issue 25 Paperturn - Page 16



NEWS
COVID-19 AND THE ONGOING IMPACT ON YOUR
COMMERCIAL CONTRACTS
Part 1- Introduction
Reform (Frustrated Contracts) Act 1943
allows recovery of monies paid under the
There has been much discussion in the
however, each individual commercial contract contract before it was discharged, subject
will need to be examined to see what is,
to an allowance, at the court’s discretion, for
past month regarding the operation of
and is not possible under the agreement,
expenses incurred by the other party.
force majeure and frustration in relation
in order to establish whether either of these
to commercial contracts impacted by the
Conclusion
Covid-19 outbreak. This article looks at these exceptions apply, and what practical steps
technical points in more detail, how they
must be taken to benefit from their reliefs.
Check the specific terms of your force
apply to your contracts. Part 2 will follow
Force Majeure – key factors to consider
majeure clause, or terms of business as a
in our next edition and goes through some
whole before serving any notice in respect of
common questions we receive.
Below are some key factors which
Covid-19 business disruption.
What is a force majeure clause?
operators need to consider:
Always consider the long-term effects of
A “force majeure” clause in a contract deals - Is Covid-19 specifically covered as
invoking force majeure.
specifically with how the parties’ obligations
a force majeure event? Some force
may be affected by an event (usually
majeure clauses contain references to
Consider reviewing your commercial
unforeseen events outside the control or
epidemics or pandemics which would be
contracts to see what amendments may
influence of either party) that affects a party’s likely to include Covid-19
be required, either now or in the future, to
ability to perform the contract.
- If no specific epidemic/pandemic
cover contract performance difficulties due to
reference, is there any wording
Covid-19.
Force majeure clauses are all different
relating to governmental decisions or
but are common place in commercial
administrative action that would cover
Backhouse Jones offer can provide a full
contracts. They usually list certain defined
the action taken in relation to Covid-19?
review of relevant key clauses and suggest
circumstances which might prevent
- Has causation been established? The
amendments tailored to your business and
performance of contractual obligations
party seeking to rely on force majeure
commercial situation for a fixed fee. Please
such as “acts of god” (e.g. earthquakes)
must establish that the force majeure
contact a member of their corporate team for
and certain acts of man of a disruptive and
event has prevented or hindered it from
advice on corporate@backhouses.co.uk.
unforeseeable nature (e.g. industrial action).
performance of the contract
The clause will usually also prescribe
- Has the party seeking to rely on force
COVID-19 and the ongoing impact on your
what the parties must do next, e.g. notify
majeure taken reasonable steps to
commercial contracts – Part 2
the other party and possibly take certain
mitigate or avoid the effects of the force
reasonable steps to mitigate the effect of the
majeure event?
Furthur to Part 1 of this article which can be
event impacting performance. In England
- Have parties fulfilled any notice
found here, below we list some frequently
and Wales, force majeure is not implied as
requirements set out in the force
asked questions.
a matter of law, and express clauses are
majeure clause?
interpreted strictly. If there isn’t a clause in
- Examine the consequences of
Is it force majeure if our supplier is still
the contract, you won’t be able to rely on it.
establishing force majeure – some
able to deliver but we don’t require their
clauses allow one or both parties to
services as a result of Covid-19?
What is frustration?
terminate the contract so ensure early
discussions are instigated with the
Force majeure clauses don’t normally
The common law principle of frustration
counterparty to establish ongoing aims/
automatically excuse both parties from all
allows a party to be discharged from its
objectives for the contractual
liability or bring the contract automatically
contractual obligations where a change
relationship, and consider all possible
to an end. Typically, a customer’s main
in circumstances makes it physically
outcomes
obligation is to pay the contract price for the
or commercially impossible to perform
service (or goods) that the supplier provides,
the contract. The circumstances where
Frustration – relief available
and they are also subject to an implied term
frustration can be applied are narrow.
If there is no force majeure clause in a
that they will not actively prevent the supplier
contract, a party may still be able to claim
from carrying out its obligation. You therefore
How are my commercial contracts
frustration to enable it to be discharged
must consider:
affected by force majeure events and
from its contractual obligations if the change
frustration?
in circumstances makes it physically or
• Does Covid-19 prevent you from paying
commercially impossible to perform the
for the service?
It is important to note that under English law, contract, or would render performance
• Does Covid-19 prevent you from doing
contracts that require ongoing performance
radically different.
something that must be done before
are, in principle, absolute. Therefore, there
the supplier can provide the service? For
is no automatic right of release if a party
The courts have confirmed that the
example, the government has required
is experiencing Covid-19 related business
circumstances where it can be invoked are
you to close your premises, where the
disruption – that party is required to perform narrow but it is likely that frustration may be
supplier needs access to your premises
its obligations and will be potentially liable to accepted where, for example, performance
to provide the service.
its counterparty for a failure to do so.
of a contract is rendered impossible due to a • Even if the supplier is still physically
state-imposed lockdown.
able to deliver the service or goods, is
The two key exceptions to this rule are:
it legal for them to do so considering the
- the operation of any force majeure clause
If frustration applies, the contract is
lockdown restrictions?
in a contract; and
automatically terminated, and the Law
16
- the common law concept of frustration,

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