Coronavirus (COVID-19) and commercial contracts - Where do you stand?

Debbie Brett, partner in Blandy and Blandy’s corporate & commercial team, explains the possible impact of coronavirus (COVID-19) on commercial contracts with The World Health Organisation (WHO) which updated its position on March 11.

Coronavirus and commercial contracts

The WHO has now declared the Coronavirus (COVID-19) a global pandemic – so what does this mean for commercial contracts and, in particular, bookings for major and corporate events?

Our corporate & commercial team has already been asked to advise on the cancellation of supply contracts and event bookings for corporate events in recent weeks.

At that time there had been no officially declared pandemic, nor any UK national governmental decision placing travel or other restrictions on individuals, save for those returning from travel abroad to category 1 and 2 countries who may be obliged to self-isolate.

Matters continue to move at a pace but the declaration of a global pandemic may now enable parties to utilise their force majeure clauses in their contracts should they be prevented from fulfilling contractual obligations by virtue of the virus and its effects.

Many businesses have made, or are having to consider making, a decision whether to go ahead with corporate events that involve travel and/or group gatherings in situations where they have already paid, or committed to pay, not insignificant sums of money by way of deposits and advance payments.

Force majeure and the doctrine of frustration

As matters currently stand, under English law a party to a contract, even one affected by the coronavirus, is required to perform its obligations under the contract and will be potentially liable to the other party to the contract for failing to do so. There are two key exceptions to the rule:

The first is the operation of any force majeure clause in the contract. A force majeure clause will usually deal specifically with how the parties’ obligations are suspended during a force majeure event, with the possibility of termination of the contract if the event goes on long enough. That would include suspension of the obligation to pay sums due.

The second exception is the doctrine of frustration. If there is no force majeure clause, a party may be able to argue that it is excused from performing its obligations if a change in circumstances makes it physically or commercially impossible to perform the contract. This is high hurdle to get over if you do want to try to rely on this to get out of the terms of a contract.

Making a decision

If you are faced with having to make a decision about an event or other contractual obligation, then we advise you consider the following:

Check the terms of the contract for any applicable cancellation policy.
Do you have any insurance in place which may cover such a cancellation? If you do, check with your insurer or broker before you do anything!
Check the wording of the force majeure clause in any written contract between you and a supplier. Some clauses will mention epidemics, health emergencies or pandemics specifically, whereas others will not. Depending on the wording of the contract, if it can be applied to the current circumstances, you may be able to cancel and obtain relief from paying any further sums due to the supplier or even obtain repayment of sums already paid. It will depend on the wording of the contract in each case.
Engage with the supplier. From what we have seen in the last week or so suppliers are sympathetic to the situation, but that may not last as the situation worsens and increasing numbers seek to cancel.