Introduction
In recent times, businesses worldwide have been grappling with unprecedented challenges, reminiscent of those seen during wartime. Sectors such as transport, oil and gas, supply chains, logistics, property, retail, and hospitality have experienced a significant halt in trading activities. The rise in liquidations, personal insolvencies, mass unemployment, and extensive governmental interventions presents challenges unseen by many in their lifetimes. These formidable problems prompt questions across various sectors about the future of business operations and whether a return to normalcy is possible, or if a profound transformation in business interactions is underway.
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Immediate Legal Concerns
In the immediate term, businesses must address several pressing legal questions. Lawyers are evaluating the boundaries of existing contracts, questioning whether ongoing liabilities for contractual performance can be enforced or if they can be suspended under force majeure provisions. The possibility of contract frustration is being explored, along with the potential for renegotiation. Additionally, businesses must consider whether losses are covered by business interruption insurance and the implications of insurers avoiding policies. The consequences of insolvency for parties involved are also a critical consideration.
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Force Majeure and Contractual Obligations
For businesses seeking to understand their contractual obligations, it is crucial to examine whether a force majeure clause exists in their contract. Such a clause typically excuses a party from fulfilling contractual obligations due to events beyond their control. If your contract includes a force majeure clause, it may cover COVID-19, depending on the wording. This clause might specifically mention pandemics or refer to government actions, such as city closures or travel restrictions.
When relying on a force majeure clause, it is essential to demonstrate that non-performance resulted directly from the force majeure event and that no reasonable steps could have been taken to avoid or mitigate the event’s consequences. It is also important to remember that under English law, a party cannot rely on the clause unless it would have been ready, willing, and able to perform its duties had the force majeure event not occurred.
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Frustration Doctrine
If no force majeure clause exists, there may still be a remedy through the legal doctrine of frustration, where performance becomes commercially or physically impossible. However, the bar for claiming frustration is high, as courts typically aim to enforce contractual agreements. Claiming frustration will depend on the specific contract and circumstances, such as government-imposed restrictions that make performance impossible or illegal.
Long-Term Considerations
Looking beyond the immediate challenges, businesses must consider the long-term impacts of pandemics on contracts. Reviewing key contracts is essential to understanding parties’ obligations and the effects of COVID-19 on performance. Businesses should identify provisions allowing for termination or postponement and assess the financial consequences. Exploring whether performance is impossible or commercially unviable due to COVID-19 is crucial.
Additionally, companies should evaluate their insurance coverage, especially in the context of risks and potential losses arising from the pandemic and government responses. Consulting specialists, such as chartered loss adjusters, can provide valuable insights into how insurance policies may address the current situation.
In this era of global uncertainty, businesses face complex contractual challenges that require both short-term solutions and long-term strategic planning. While each contract must be evaluated individually, understanding the legal landscape and engaging in proactive negotiations with counterparts is essential. By doing so, businesses can work towards new contractual arrangements that accommodate the evolving circumstances brought about by the pandemic.
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