BUSINESS
Stuck in a Contract?
BY NICHOLAS JOHNSON, ASSOCIATE SOLICITOR CORPORATE & COMMERCIAL,
WHITEHEAD MONCKTON
THE CURRENT LOCKDOWN HAS CAUSED MOST BUSINESSES HUGE PROBLEMS WITH
FULFILLING THEIR CONTRACTUAL OBLIGATIONS. SO WHAT CAN YOU DO?
The general position under English law is that you
are required to perform your obligations under a
contract unless it can be:
(a) terminated in accordance with its termination
provisions;
(b) varied, waived, released, terminated, or amended
by mutual agreement;
(c) terminated as a result of force majeure;
(d) terminated due to non-performance as a result
of frustration.
In addition, there are other ways in which a contract
can be terminated, rescinded, or amended using the
Courts but specialist advice will be needed.
If you are a party to a contract which is being affected
by the Coronavirus in any way then either you or
the other party may be looking at getting out of that
contract. The force majeure clause may provide a
suitable mechanism to avoid performance of a
contract. The first point to check will be the exact
wording of the force majeure clause and the contract
to see if the outbreak falls within its definition.The
term force majeure has no recognised meaning in
English law so it will need to be defined in the
52
contract. If there is a dispute as to the scope of the
clause then the Courts usually apply principles of
contractual interpretation and the specific
circumstances of the matter. For example, if the
force majeure clause is very broadly drafted along
the lines of an event beyond the reasonable control
of the parties, then this may allow non-performance
of the contract. Issues such as whether the
consequences of the outbreak could have been
avoided or if there are alternative ways of performing
the contract may also be looked at. The full
circumstances of the situation and the exact wording
of the clause will have to be analysed.
If the contract does not have a force majeure (or
similar) clause or it does not cover the situation then
consider ‘frustration’. If the contract cannot be
performed as a result of the outbreak then one party
may claim that performance of the contract has
been ‘frustrated’ and that therefore they do not have
to perform their obligations under the contract. This
is a complex area and we strongly suggest you take
legal advice before claiming ‘frustration’.
Summary
Contracts are always open to negotiation. If you
want to keep a good relationship with the other party
then look for a sensible and commercial solution.
(i) Can the contract be terminated: what are the
termination provisions?
(ii) Suspend or vary the contract? If you are looking
for a proportionate and sensible solution then work
with the other party to find an appropriate solution.
(iii) Is time of the essence for performance of the
contract? If not then you might have time for the
outbreak to be resolved. If time is of the essence
then can the parties agree a new date for delivery?
If you would like to discuss the issues in this article
then please don’t hesitate to contact us:
E: [email protected]
T: 01622 698000
www.whitehead-monckton.co.uk
WMonckton
WhiteheadMoncktonLimited