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How will coronavirus (COVID-19) affect commercial contracts?

The global and unprecedented ramifications of the coronavirus (COVID-19) pandemic have exposed many businesses to legal complications and difficulties with their commercial contacts. How will coronavirus affect the effective enforcement of contractual terms? It will likely cause problems for manufacturing activity, to businesses, supply chains and the availability of staff.

Some businesses are looking to avoid performing their contractual obligations (for example through the invocation of a force majeure clause), whether because COVID-19 has genuinely prevented them from fulfilling their legal responsibilities or because coronavirus serves as a ‘convenient’ pretext to avoid complying with the contract.

It is important, in times of great national uncertainty, to seek advice from specialist breach of contract litigation solicitors who understand the effect that coronavirus can have on commercial contracts.

What legal remedies are available when a contract cannot be performed?

Where a contract has become genuinely difficult or impossible to perform, there are two main remedies in English law:

  1. using a force majeure clause in the contract; and
  2. the common law doctrine of frustration.

Frustration will terminate a contract automatically when:

  1. an unexpected event occurs;
  2. that unexpected event is beyond the control of the parties; and
  3. that unexpected event either makes performance of the contract impossible or makes the relevant obligations different from those considered by the parties at the time that the contract was agreed.

How might coronavirus (COVID-19) frustrate a commercial contract?

The coronavirus (COVID-19) outbreak might frustrate a contract in one of the following ways:

  1. Method of performance of the contract becomes impossible – If the method of performance under contract becomes impossible, then the contract will likely be frustrated. However, a contract will not be frustrated if performance of the contract is possible in a different way and if the change in method of performance is not fundamental.
  2. Illegality – If changes in law (for example, the emergency legislation recently introduced to deal with the COVID-19 pandemic) make the contract illegal, then that contract would be frustrated.
  3. Failure to provide person or object essential to performance of the contract – If a person or object that is essential to the performance of the contract is unavailable due to the fault of neither party (for example, due to restrictions on imports arising from the COVID-19 pandemic), then it is likely that the contract would be frustrated.

What is the effect of a contract being frustrated?

The effect of a contract being frustrated is that the contract is automatically terminated.

Parties to a frustrated contract are – by virtue of the Law Reform (Frustrated Contracts) Act 1943 – able to recover any monies paid under that contract (although the Court can allow the other party to keep expenses incurred before the contract was frustrated).

London Litigation Solicitors

Our London litigation lawyers act as tenaciously as the client’s needs and case demands. Our chambers are located near the ​High Court and Central London County Courts in the ​Royal Courts of Justice​​ in Central London​ and can act with speed on your litigation matters​. We ​can accept urgent instructions and obtain injunctions rapidly. For example we obtained an ​out of hours emergency worldwide freezing injunction​ for a client in the diamond trade.​ ​Our client’s case required overnight preparation of affidavits and attendance upon a Judge at his private residence followed by immediate enforcement action and further attendance the next morning at the High Court. We​ achieved all this in-house as we are a firm of solicitors and barristers.

​Instructing our Litigation Lawyers

​We​ ensure that we provide the best possible outcome for our clients by conducting in depth investigation and research into the realistic prospects of a case before selecting the appropriate course of action in order to reduce time and expense. Liability for costs is always an issue in litigation and based on our extensive litigation experience we provide our clients with as much strategic, practical as well as carefully considered legal advice in order to ensure minimum risk in respect of costs. Where appropriate we encourage the use of alternative dispute resolution (such as mediation and without prejudice negotiation) and our lawyer’s negotiation skills are first class. If early settlement at advantageous terms is not possible, we are extremely experienced and capable at navigating our clients through the litigation process.