COVID-19 and contracts – what happens now?

As lawyers, we’re often asked why we’re such doom merchants and worry so much about those things that are ‘never going to happen’. However, our response? We want to help you manage your legal risk and, that often means taking a ‘glass half empty’ or, more often, a ‘glass is broken’ perspective.

The ongoing Coronavirus/COVID-19 outbreak provides us with an example of this. Whilst it’s a risk, and a risk that would not have been front of mind at the time, it’s something that needs to be considered when entering legal contracts. Let me explain.

Here’s a question, what are your rights and obligations if your supply chain is affected by COVID-19? Some of our clients tell us that quarantine restrictions now means that a 10-day sea voyage needs to be extended to 14 days or more. But, as an importer, you may have clients expecting to receive goods on time and now find that that stock is stuck at sea, or can’t even reach port in China. What happens if you have promised your client that they will receive goods by a certain date, but those goods are under quarantine?

That is where a force majeure clause is important. Force majeure clauses are designed to excuse parties from their contractual obligations and liabilities while they are prevented from performing the contract by certain defined events, typically ‘act of God’ type events and events beyond reasonable control. A well-drafted force majeure clause could operate to prevent you from being in breach of contract in the above example.

If you are suffering disruption due to COVID-19, it’s important to check your supply contracts to see whether they include a force majeure clause, what events the clause covers and what rights you and your counterparty have as a result. One would, of course, hope that all parties are taking pragmatic approaches to this crisis but you should make sure you are clear on your legal position first.

If you need any assistance with reviewing your contracts, or you want to update your contracts to include an appropriate force majeure clause, please contact us today.