Commercial Contracts Hub

Our commercial contracts team has been advising clients on a range of legal implications arising from the spread of COVID-19. 

Public, private, and voluntary organisations alike, have encountered contract law challenges. Complex commercial contracts require careful review, especially by businesses struggling to carry out their contractual obligations. Other businesses are embarking on new and unfamiliar arrangements for the first time where they need to rely on our experience and guidance. 

Please do not hesitate to contact our commercial contracts lawyers if you require any specific COVID-19 related advice.

Managing contractual risk

Organisations may have contractual counterparties that fail to perform their obligations, or they themselves may be unable to perform.  COVID-19 may also be used to attempt to get out of unprofitable contracts.

Non-performance could be caused by:-

• Labour shortages and reduced productivity
• Disruption to supply chains, closed factories and plants
• Travel restrictions and quarantine measures
• Import and export restrictions; or
• Restrictions imposed on the workforce.

However, in certain circumstances, non-performance may be excused, for example:-

1. Force majeure

Contracts often contain force majeure clauses that excuse non-performance in the manner agreed between the parties.

Key considerations are whether:-

• COVID-19 caused the failure to perform
• Viruses/epidemics are listed as force majeure events
• There is a duty to mitigate; and
• The event can be overcome.

Where a contractual obligation may be partially fulfilled, such as by allocation of materials among customers, failure to make a reasonable allocation (i.e. electing to supply one customer over another) can break the chain of causation and result in relief being denied.

Similarly, force majeure may not provide relief in respect of those parts of a contract which can still be performed.

Typically, the event must be:-

• An event for which neither party is responsible
• Unforeseeable; and
• Incapable of being overcome.

Be aware of the potential for conflict between force majeure relief available at law and contractual force majeure clauses under legislation.

2. Frustration

The doctrine of frustration requires a change in circumstances that renders performance under the contract radically different from what was originally envisaged.

Mere difficulty in performance or commercial hardship are not sufficient.

3. Breach of other contractual terms

Many contracts contain representations and warranties made by the counterparties, some of which will repeat after the contract is entered into.

Contractual undertakings and covenants impose continuing obligations on counterparties.

Consequences of breach of representations and warranties or of undertakings/covenants will depend on the terms of the relevant contract but could include a right to terminate for the counterparty.