Business Contracts and Covid 19

The 21st of June has become an important date in the UK as we all look forward to the lifting of restrictions relating to covid-19.

Although there is light at the end of the tunnel, there are still a few things that you may want to consider with regard to b2b contracts.

If your business is likely to be unable to fulfill contractual obligations due to covid-19 and any fall out after June 2021, then you should review your contracts with suppliers and customers.

Some events are beyond the control of parties involved in a contrac. These events are commonly referred to as “force majeure” events and include things such as natural disasters, terrorist attacks or global pandemics. The clause will often allow a party to be excused from their contractual obligations should a force majeure event prevent them from carrying them out. 

For more on the importance of a force majeure clause, see Crest Legal.

The clause sets out terms in the case that an event occurs outside of the control of the parties in a contract. In this case the contract would not be able to be fulfilled.

In most cases, if a force majeure event prevents a party from fulfilling their contractual obligations, that party is not liable to the other party. 

Equally if the uncontrollable event continues for a long period of time, then either party may be able to end the contract and there may be conditions that apply in order for the force majeure clause to be enacted.

The force majeure clause will allocate risk of the unexpected events between the supplier and the customer. 

Creating and reviewing your force majeure clause

Define whether you have classified the coronavirus outbreak as a force majeure event.

An epidemic or pandemic should be listed as an example of a force majeure event, however there may also be other events listed such as government restrictions or bans on travel as has happened during the covid-19 pandemic.

It’s a good idea to include a general “any event beyond reasonable control of the parties” as part of the contract. This will cover a number of unexpected events such as Covid19.

Enabling the force majeure clause

Understand to what extent the pandemic has impacted the party’s ability to fulfill its obligations.

The party must demonstrate that the events have impacted its ability to perform its obligations. For example, if the party is only hindered and the management make a decision not to perform the obligation, the clause may not apply.

On the other hand, a party may not be able to fulfil their end of the contract due to government restrictions.

It’s therefore important to carefully consider the clauses in your contract during such uncertain times.

To save yourself lots of hassle, you should consider the following;

Review any contracts you have with suppliers or customers and determine how the coronavirus might affect these relationships in the coming months or even years. 

This will help you to identify risks early.

Consider insurance cover and whether it covers you for things like pandemics.

Consider any long-term impacts on relationships with customers or suppliers that enforcing a force majeure clause may have.

Review your contract dispute resolution process. This may help me resolve any disputes in a timely fashion.

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