Coronavirus: Impact on commercial contracts

Coronavirus is undoubtedly having an effect on the ability of businesses to fulfil their contractual obligations. The restrictions being imposed are forcing businesses to halt and/or cancel operations, which means that legal issues may arise.

If your business is no longer able to perform its contractual obligations because of the impact of the Coronavirus you should consider the following:

• Review the contract/ terms of business and see if there is a force majeure clause.

Force majeure clauses can excuse a contracting party from liability for non-performance, but whether or not the Coronavirus can be classified as a force majeure event will likely depend on how force majeure is defined in the contract. The applicability of such a clause depends entirely on the facts of each individual case.

If your contract does not have a force majeure clause, the contract may still contain clauses setting out what happens if the contract cannot be fulfilled for unexpected reasons. Even in the absence of such clauses there may still be arguments that either party could use to excuse a breach of contract. One such argument would be to rely on the principle of “frustration.” Generally, a contract would only be frustrated if the contract becomes impossible or illegal to carry out because of the Coronavirus; it can only be used in narrow circumstances and again each case must be reviewed on its own facts.

• If you think you are likely to be covered by insurance for any losses or claims, contact your insurers who may have guidance about how to inform your customers you will not be able to fulfil the contract.

For advice on the effect Coronavirus is having on your business’ contract, please contact our Dispute Resolution team 01228 552222.