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COVID-19: Advice for businesses

Posted Thursday 10th June 2021

Whilst things do appear, finally and thankfully, to be improving, and although the coronavirus-related restrictions in the UK are slowly being released, we continue to receive a large volume of questions from our clients about the impact of the pandemic on  their legal rights and obligations. Many clients have been particularly worried about their contractual arrangements and whether there are any potential liabilities that they need to be aware of. In this note we look at some of the most common issues under English law that we have been advising our clients on.

Ending a contract: force majeure clauses

There are plenty of agreements which were entered into even recently that no longer make sense in midst of an ongoing pandemic. A force majeure clause is the part of a contract that is intended to address the “known unknowns” and govern what happens if something out of the ordinary occurs.

Force majeure clauses are interpreted literally: it does what it says on the tin. To be able to rely upon a force majeure clause, your circumstances need to match one of those set out in the agreement (known as the “force majeure events”).  Many force majeure clauses drafted around the time of the 2008 SARS epidemic or after it include epidemics, pandemics or disease outbreaks, but by no means are those events in every agreement.  If an agreement has a clear reference like this which matches the Covid-19 pandemic, or a perhaps general term such as “any circumstance not within a party’s reasonable control”, then you may be able to invoke the force majeure clause.

The effect of a force majeure clause is set out within the clause itself.  They typically suspend the affected party’s obligations and, if the force majeure event persists for a certain duration of time, allow the other party to terminate the agreement.  The specifics will vary from contract to contract. It is important to note that there is no fixed standard, however, and you need to carefully read the clause and take advice where necessary.

Not all agreements contain a force majeure clause – if an agreement was kept very short or basic, or perhaps even verbal, then it is unlikely that one was included.  If your contract does not have a force majeure clause then you must either look to the law of frustration or otherwise have to perform your obligations under the agreement.

Ending a contract: the law of frustration

A contract may be frustrated where previously unforeseen or uncontemplated circumstances arise which makes it impossible to fulfil the agreement. Examples from the past include agreements for:

  1. a band to play a series of concerts, only for the concert hall to burn down;
  2. the hire of a flat for viewing the coronation of Edward VII, only for the coronation to be abandoned; and
  3. an English company to sell iron ore to Germany, only for World War One to be declared and the agreement made illegal.

Depending on what your contract is for, Covid-19 coronavirus may constitute a frustrating event.

Successfully relying on the law of frustration is, however, difficult and usually much harder than relying on a force majeure clause.  The courts set a high bar: it is not enough that it is simply more difficult or expensive for you to perform your obligations, it must essentially be impossible for the contract to be performed.

As the UK coronavirus restrictions continue to be released, the scope for businesses to argue that future events have been frustrated as a result of the pandemic is lessening.  However, where events have already been affected, this may be an area that it is worth considering, especially where disputes have arisen.

Negligence

There are certain relationships whereby one party owes a “duty of care” to another party at law due to the nature of the relationship. There are numerous examples, but the most obvious ones to consider in light of the ongoing pandemic are employer-employee, manufacturer-customer, restaurant-diner and event organiser-attendee.

Where a duty of care is owed, the party that owes the duty must exercise “reasonable steps” to avoid the other suffering any “reasonably foreseeable harm”. This is left deliberately flexible and open by the courts. Anyone who owes a duty of care needs to assess the situation and carry out any reasonable steps. Through the Covid-19 coronavirus optic, this could mean providing hand sanitizer or additional hand washing stations; allowing employees to work from home; and setting up a programme for disinfecting a workplace/venue. Common sense precautions are rarely a bad move.

If the party that owes the duty does not take the reasonable steps that it ought to and the other person falls ill, the party owing the duty can potentially be sued for damages.

Statutory and regulatory obligations

Despite the recent easing of restrictions, many government departments (such as the Department of Health and the Home Office) continue to have wide reaching powers and rights to institute new measures, so new measures may be implemented again at short notice. We recommend that all of our clients keep a close eye on the news, follow any relevant advice and pay careful attention to any new laws or regulations that might be implemented.

Other issues

The headline points set out above are just the tip of the iceberg focused on commercial trading matters. There may also be employment law issues to consider, potential tax residency complications that could arise as the result of a quarantine and additional reporting obligations on listed companies, among others. What your business might need to do in any given situation is entirely dependent upon the facts and what your business is. If you need any advice or assistance in establishing what your position is and figuring out how to best manage any potential liabilities, do get in touch with a member of our corporate/commercial team who will be happy to assist.


This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.


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