COVID-19: Safeguarding contracts and dealing with uncertainty

By Jessica-Anne Johnson, Jon-Paul Casati and Rob Coleridge

In these unprecedented times, businesses are making important decisions in circumstances of widespread uncertainty across the globe. In this article we give you our five top tips on how parties to business to business contracts can seek to safeguard their contractual relationships.

1. Remind yourself of the detail of your contracts

Put aside some time to read through your contracts to understand your rights and obligations. A good contract should be written in plain language, so it may be clear after an initial reading whether the terms of the contract support your business, or there are areas of concern. You may find there are some practical steps to protect your business.

2. Think about whether there are other factors which may influence your contractual relationship 

Beyond terms set out in the actual document, other terms can be implied into contracts for the supply of goods and services. These include that:

• services should be supplied within a reasonable timescale
• goods should be delivered within a reasonable time
• goods should be of a satisfactory quality.

If your contract is now impossible to perform, the doctrine of frustration may bring the contract to an end and relieve the parties of their contractual obligations. You can read our article on frustration by clicking here.

3. Make sure you understand what your rights and obligations are when things go awry.

Your contracts may (and ideally should) contain clauses for when things don’t go to plan. These clauses can be very important for the purpose of protecting your position and dealing with difficult situations.

Key clauses include:

• force majeure – deals with events outside the parties’ control that may prevent performance. You can read our article on force majeure clauses by clicking here. 
• termination - sets out the circumstances in which parties may be permitted to unilaterally terminate a contract
• limitation of liability – sets out how parties may seek to limit or exclude their liability for any losses for breaches of contract or other events
• notices –specifies how, when and to whom notices must be given
• pricing – may permit parties to raise prices to take account of unforeseen costs or situations
• dispute resolution – sets out how and what steps parties should take to resolve disputes arising in connection with said contract.

4. Consider varying the contract 

You may want to vary a contract to reflect your changing needs or the environment you operate in. Some contracts may look to prevent variation, while others will allow for changes to be made if certain conditions are met, such as those variations being made in writing and agreed by both parties. Be mindful that oral variations may be valid, and it is also possible to vary a contract by conduct.

If you want to negotiate to vary a contract, you should:

• mark written communications as ‘subject to contract’
• prepare a variation agreement or deed
• keep the variations with the original contract so you can easily follow the changes made
• be careful as to when you start instigating any changes, so as to avoid breaching the contract or agreeing a variation inadvertently.

5. Maintain your relationships and protect your reputation 

After such uncertainty, and to turn the tide of the economic downturn, it’s important that businesses emerge with strong relationships with customers and reputations intact. Where possible, avoid adopting overly aggressive positions in relation to a potential dispute, take a commercial approach, and keep the lines of communication open.

In negotiations, it may help to keep records of telephone calls, protect confidential information, and preserve all relevant documents.

If a dispute cannot be resolved amicably, you may wish to take legal advice before terminating a contract as the penalties for wrongful termination can be severe.

Rob Coleridge, Senior Associate, and Jon-Paul Casati, Associate, from our Commercial Dispute Resolution team are hosting a webinar on Thursday 30 April at 2pm where they’ll be discussing this topic in greater detail. If you’re interested in attending, you can register by clicking here, and if you would like to submit questions to them, please send them to Rob.Coleridge@IrwinMitchell.com or Jon-Paul.Casati@IrwinMitchell.com