The Government enforced lockdown is having a huge impact on the commercial world; premises are empty, work forces are operating remotely or on furlough and the demand for most services has fallen through the floor. We may only be a short way in to this altered economic reality - but for most businesses, now is the time to focus on how to survive a potentially sustained period of lockdown followed by a period of economic uncertainly to ensure that they are in the best possible position to continue to operate when we emerge from the Covid-19 crisis.
In our experience, many businesses were fairly swift in recognising immediate short-term contractual problems and assessing the various Government Schemes designed to assist businesses. Many also took practical steps to try and mitigate the immediate financial impact of being forced either to close or to dramatically alter their normal operations. But the effects of lockdown will be long lasting and will clearly leave the economy in a fragile condition.
In such circumstances, it is increasingly important for businesses to review their long-term commercial contracts. To survive lockdown and the months following, it will be necessary to consider the legal implications of any action contemplated to preserve contracts and business relationships and be alive to the potential consequences of action threatened or taken by other contracting parties. The approach taken by others may also change once restrictions begin to be lifted. Those who may have adopted an amenable approach during the pressure of lockdown may become less understanding as we return to some sort of normality. All this is fertile ground for potential disputes.
Over the course of the coming few weeks we will be producing a number of guides on key issues that we anticipate businesses should be considering in the coming months. The topics we will cover are:
To survive lockdown you agreed to vary your contract. But is it binding? Did you meet the legal requirements? Did you comply with the terms of the contract you were trying to amend?
Duress and undue influence
Did you improperly force the other contracting party to accept amendments to your contract? What are implications of such action?
Waiver and estoppel
Even if not formally agreed, was something proposed by one party which caused the other to act in a particular way? Can a party just walk away from what they proposed? Have rights under the contract been waived by some action or inaction by the party seeking to rely on those rights?
If the contract has been breached during lockdown, can the contract be terminated? If it wasn’t terminated during lockdown, can that breach be the basis for terminating the contract as lockdown restrictions are lifted?
Can you be compelled to perform your obligations under a contract? Can you compel the other party to perform?
Dispute resolution clauses
If your contract includes a series of steps to be taken to resolve disputes, can you ignore those steps because they are inconvenient during or after lockdown? If the contract is terminated, do you need to follow these clauses to resolve the dispute?
These practical guides will be published over the next few weeks on the our website and released on the usual social media platforms.
Our first piece of content on whether contract amendments agreed during lockdown are legally binding can be found here.
If you have specific queries, please do not hesitate to contact a member of our Dispute Resolution team.
We have also created an initiative called “LSUnlock” to help businesses access legal advice during these difficult times. This initiative has been designed specifically to assist clients in this uncertain economic climate and is part of our commitment to working with clients to survive the Covid-19 crisis.
To survive lockdown and the months following, it will be necessary to consider the legal implications of any action contemplated to preserve contracts and business relationships.