COVID-19 Legal Update: Customer and Supplier Contracts
COVID-19 Legal Update: Customer and Supplier Contracts
“Force majeure” provisions are often over-looked clauses hidden at the end of the contract but have become vitally important in the Coronavirus period. If you can show that the government-imposed restrictions have prevented you from performing your obligations then the force majeure provision may allow you to suspend your obligations without incurring liability to the other party. You must take all reasonable steps to avoid or reduce the effects of this situation.
You should check your contracts though as there is no general concept of “force majeure” under English law. If it is not in your contract, your failure to comply with your contractual obligations might mean you are in breach of the contract, unless you can rely upon the doctrine of “frustration” to show the purpose of the contract has been frustrated by the lockdown restrictions. This doctrine provides that a contract will be treated as if all primary obligations have come to an end where an event occurs after the contract has been entered into, which is unexpected, beyond the control of the parties and renders it physically or commercially impossible to fulfil the contract, illegal or renders performance radically different to that which was envisaged at the time of entering into the contract. For example, if it is now impossible to import goods a result of export controls or if performance of a contract becomes illegal in light of the new Coronavirus Act.
Courts have always applied the doctrine of frustration narrowly and a temporary hindrance (for example in relation to a two-week period of quarantine), the fact that performance is now more expensive (even if substantially so), and/or less convenient is unlikely to cut it. Parties considering relying on the doctrine of frustration (or a force majeure clause) should seek advice before doing so to avoid ending up in breach themselves.
Don’t forget that, now that we know about Covid-19 and can anticipate and plan around the effects, it is probably no longer an event beyond your reasonable control in respect of new contracts that you are negotiating currently. You should provide for this in the contract, just as you should with Brexit.
Will insurance cover help?
The Association of British Insurers has warned that most businesses don’t have insurance to cover them for losses caused by the current disruption. Standard business interruption insurance typically covers physical damage at the property but doesn’t include forced closure by governments. So your insurance cover – if you have it – probably won’t cover you. You should check your insurance cover asap.
Can you terminate?
If things are really bad, maybe you can terminate your contracts. There’s no point in continuing to pay for goods or services that you can’t use or resell. So check your termination clause. Can you terminate for force majeure of for convenience? How much notice must you give?
Business continuity
By now, you have probably engaged your business continuity plan. This might have been the first time that you have had to use it for real. Hopefully it is going well. But take a minute to ensure you’ve bought enough remote access licences and server / compute resource and that you can scale up quickly. Software asset management doesn’t stop just because human movement does. Software proprietors will enforce their rights even if there is a lockdown.
Personal data
Normal rules apply about use of personal data even with staff working remotely. So make sure your staff comply with your IT and data security policies in the normal manner and protect information. Are they printing documents at home or sending messages to their personal email addresses. Also, think about where the personal data is being stored, especially if your IT supplier is based outside the EU. Have you transferred the data in accordance with GDPR? If not, the ICO may fine you.
Please contact Alexander Weinberg for further information.
The information in this article was prepared on 3 April 2020. The law and practice is currently changing daily, so please check the up to date position before acting on anything you read here.
