Coronavirus and contract disputes
Our commercial litigation team has seen a number of contract disputes arise due to the practical difficulties brought about by coronavirus. In recent weeks we have dealt with a range of disputes caused by the pandemic, including wedding contract disputes, holiday contract disputes and building contract disputes.
Here is a summary of the key contact provisions that are likely to be relevant when a contract dispute occurs.
Contract performance and delay
A number of business sectors have been seriously impacted by coronavirus and the subsequent lockdown imposed by government. While lockdown is now being eased, certain business sectors, such as hospitality, remain in a full lockdown.
If a contract dispute arises, it is advisable to retain a dialogue with the other party to the contract and to see if you can negotiate a practical solution. Any agreement to vary or suspend a contract or settle a contract dispute should be recorded in writing. Obtaining legal advice is always recommended before any terms are finalised.
Contractual obligations, suspension and termination
The starting point is to carefully read through your contract. It will likely say what the parties must do to perform their obligations under the contact, when those obligations must be complied with and whether there is any express provision for dispute resolution in the event that a contract dispute arises. Some contracts require the parties to refer any dispute to ADR such as mediation or adjudication. Sometimes ADR is not mandatory, but simply suggested by the contract.
You should also consider whether there are any provisions allowing for suspension or termination of the contract. Contracts can sometimes provide for an express right to suspend or terminate the contract upon giving a period of notice, usually in writing. Contracts can specify a particular event that permits one party to terminate the contract due to the other party’s breach of contract or alternatively refer to “material” breaches of contract. It is vitally important to seek legal advice on whether you have a right to cancel as if you terminate wrongfully then you may be in breach of contract and at risk of a claim for damages against you.
Force majeure clauses
Contracts can sometimes include the a force majeure clause which allows parties to avoid having to comply with their obligations under the contract where an event occurs that is beyond their reasonable control. It is worth bearing in mind that a force majeure clause has to be expressly written in the contract and cannot be implied by conduct or a previous course of dealing.
Coronavirus is an event that may allow a party to rely on a force majeure clause. However much depends on the individual wording of the clause and the facts of each case. It is therefore imperative that legal advice is sought as if a party incorrectly relies on such a clause and fails to perform their obligations under a contract then they are likely to be in breach of contract and at risk of a claim against them.
If a contract does not include an express force majeure clause then you may be able to rely on the law of frustration. A contract may be ended by frustration where the performance of that contract becomes impossible due to the frustrating event or makes a fundamental obligation radically different. However it is very rare that a contract is frustrated and legal advice should again be sought.
If you are involved in a contract dispute and are looking for experienced solicitors then call our free legal helpline for a chat on 0808 139 1606 or send an email to us at [email protected]