Key points to consider to avoid a costly dispute in times of crisis
The coronavirus has thrust us into unchartered territory in many aspects of our lives.
We have received a number of enquiries about whether a contract remains enforceable having been made impossible to fulfil due to the coronavirus.
As the situation is so dynamic and with so many hypotheticals, it is difficult to confidently advise; the key though is that this was an unforeseen event that nobody had on their minds at the point of contracting.
There are though some key points to consider.
In contract law, the doctrine of frustration dictates that a contract may be frustrated where a change in circumstances, after the contract is made, which is not the fault of neither party, which renders the contract either impossible to perform or deprives the contract of its purpose. Where a contract is “frustrated”, each party is discharged from its obligations, neither party may sue for breach and the allocation of loss is decided by statute. It is rare for a Court to hold that a contract is frustrated though we are in uncertain times and it could hardly be said that the coronavirus was a household name this time last year as it is now.
Long commercial contracts between businesses often have a “force majeure” or similar clause for matters such as strikes, wars and acts of God and it may well be that the coronavirus may satisfy such a clause depending on how it is drafted. They are though notoriously difficult to satisfy in the Courts.
It may also be that there is insurance in place to guard against the risk of an event such as a pandemic so it is worthwhile checking your policy of insurance if there is a potential loss that you are facing.
If no insurance is in place, and no express contractual agreement is in place, the parties should be encouraged to take a flexible, pragmatic and collaborative approach in order to ensure that each party mitigates and seeks to minimise their loss – for example consider the postponement rather than the cancellation of an event or the return rather than the retention of a deposit and the like, so as to avoid a dispute and the possibility of a dispute escalating to the point of costly litigation.
Judges like to see Courts as avenues of last resort and so will not have much sympathy for a party who takes an unreasonable stance in the face of genuine uncertainty.