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COVID-19: Legal update for contracts

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United Kingdom

Since publishing our article last month on 'Coronavirus & implications for international supply contracts', the issue has grown exponentially and is likely to leave no part of the worldwide trading economy untouched.   
The outbreak has caused stock markets to tumble and has made trading across borders (and even domestically) more difficult, primarily affecting the supply-side but now also negatively affecting customer demand (unless that is, you are a manufacturer of toilet roll or long-life foodstuffs).

Contractual Considerations
 
Further to the discussion in our article last month, businesses must now (if they have not already) consider the implications of 'force majeure' clauses, as well as the doctrine of frustration, on their existing and future contracts with each end of their supply chain.
 
In a little more depth, businesses should review key contracts to ensure they contain appropriate provisions. Particular attention should be given to the drafting of the relevant provisions and an assessment made as to whether the force majeure clause covers the current events or could do in future, depending upon governmental response to the same.
 
Businesses should also note that there is no rule of English law that prevents a party from relying on a force majeure clause in relation to an event that existed at the date of the contract, so planning should be made now in respect of future arrangements.
 
Consumer protection

  
The CMA issued a statement last week warning traders not to exploit the coronavirus outbreak to take advantage of people. Businesses ought to behave responsibly and not charge vastly inflated prices or make misleading claims, for example about the efficacy of protective equipment.
 
It is worthwhile noting that the CMA will consider any evidence of breaches of competition and consumer protection law, take direct enforcement action and assess whether it should advise Government to consider taking further action.
 
Recommended Actions
 
Businesses looking to enter new agreements during this period should consider the contractual provisions they are agreeing to and ensure that the risks to their businesses are minimised.
 
Additionally, businesses are advised to review their existing agreements carefully, with particular regard to the governing law and force majeure provisions. In particular, focus should be upon:
  • the laws applicable to the relevant agreement, and the current developments under that jurisdiction in relation to the Coronavirus outbreak; and
  • the way in which the force majeure clause is drafted – whether it's ambiguous or provides an exhaustive list of applicable events, if there are any specific exclusions, the notice requirements and the remedies.
  • where there is a risk of failure in the performance of contracts, businesses should consider the consequences of non-performance clauses within those contracts, such as liquidated damages clauses, under which the amount of compensation for non-performance has been predetermined and agreed by the parties when entering into a contract. If enforceable, actions should be taken to minimise the likelihood of triggering the clause, or preparations should be made to enforce such a clause, depending upon the business' position. Consideration should also be given to any insurance requirements or coverage in connection with such claims.
 
Further, it is likely that businesses will have already devised pre-emptive practical measures, such as identifying alternative sources of key components or resource, so as to minimise the possible impact of the outbreak. However, businesses are also encouraged to take steps to seek information and engage in dialogue with both suppliers and customers in order to help proactively manage and mitigate risks and ultimately protect their position.
 
For support on this matter or with regards to any queries on this topic, please contact James Corlett or your usual Fieldfisher contact...

 

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