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Coronavirus –  What happens if your business cannot perform a contract?

Over recent days, we have seen a surge in enquiries from businessowners worried about the impact of Coronavirus on their business. A typical question we have been asked is: what happens if we cannot fulfil our contracts? Can we be sued?

The answer may lie in the agreements themselves which should be reviewed early and carefully. Some practical options may include varying terms or considering whether to terminate, where possible. If neither option is available, but the contract is time critical, think about:

What does the “force majeure” clause say?

Many agreements have clauses relating to “force majeure” which explain what happens when something prevents a party performing its obligations. Such clauses cannot be implied into contracts, and must be expressly included.

Where a force majeure clause is widely drafted (even if it doesn’t relate to pandemics or diseases but includes any act or thing outside the control of the party affected), a spread of Coronavirus may be a force majeure event and may release a party from liability. However, a badly drafted force majeure clause (which relates only to “Act of God” or just talks about a ‘force majeure event’) may be insufficient.

But, the fact that a force majeure clause may cover Coronavirus isn’t enough on its own. The party seeking to rely on it must demonstrate that they can’t perform the contract because of circumstances beyond their control. They also need to show that there were no reasonable steps that were available to avoid or mitigate the event or its consequences.

Has the contract been frustrated?

If the Coronavirus pandemic causes performance of a contract to be commercially impossible or where the outbreak causes the fulfilment of the contract to be something very different to what was agreed, it may be that the contract will be frustrated. If the contract is frustrated, the parties may no longer be bound to perform their obligations.

Anyone worried and looking for advice on their situation should consider taking legal advice from experienced commercial lawyers.  If you would like us to consider your situation, and advise on mitigating your risk, please contact our litigation director – Llyr Davies, on 01792 776769.