The uncertainty surrounding the COVID-19 pandemic has sent economic
markets around the world into a state of flux, the true impact of which will
remain unknown for some time. With each passing day, businesses of all shapes
and sizes operating in Northern Ireland and abroad continue to deal with an
unprecedented and increasing level of restrictions which puts into question their
ability to perform the duties and obligations imposed on them in their commercial
contracts.
In Northern Ireland, a contracting party must perform its contractual
obligations as set out in the contract. This obligation is sacrosanct under
Contract Law (save for a couple of exceptions) and failure to do so will be considered
an actionable breach of that contract. This obligation will not be discharged unless
the contract expressly permits, even if a contracting party is prevented from
performing its contractual obligations by the current COVID-19 pandemic.
It is therefore vital for a business to identify all contractual
relationships they are currently a party to. This may range from contracts with
supplier and customers to anyone at any level of the supply chain. Once
identified, the contracts should then be reviewed to see if there are any
rights or protections available to the contracting parties. It would also be beneficial
for the contracting parties to engage in dialogue at an early stage to discuss the
current and potential impact the current restrictions will have on their
relationship.
Many contracts will contain what is called a ‘Force Majeure’
clause. This is a clause which excuses one or both contracting parties from performance
of a contract in the circumstances whereby they are unable to do so due to the
occurrence of certain events. As there is no statutory or common law principle
of Force Majeure, it must be explicitly provided for within a contract.
The availability of a Force Majeure clause to excuse a party
from performance of its contractual obligations due to the COVID-19 pandemic will
turn on the precise wording of the clause. Each clause should be considered on
a case by case basis as each contract may provide for difference circumstances
that constitute a Force Majeure event. With the COVID-19 pandemic in mind, key
terms to look out for in a Force Majeure clause are “disease”, “epidemic”,
“pandemic” or “act of government”.
In the absence of a Force Majeure clause, a contracting party
may rely on the doctrine of frustration to excuse it from performance of its
contractual obligations. This would allow a contracting party to cease
performance of its contractual duties on the basis that it has become
impossible, or illegal to perform the contract. Whilst case law would suggest that
it is difficult to bring a claim under the doctrine of frustration, a
contracting party may be successful if their specific circumstances demonstrate
that the contract is frustrate (e.g. state imposed lock-down on their business
meaning they do not have the staff available to perform the contract).
Sadly there is no ‘quick fix’ to the current difficulties facing businesses in Northern Ireland. It is for this reason that Northern Irish businesses should act now to consider the short- and long-term impact of the COVID-19 pandemic on their contractual relationships.
If you require assistance, please contact the Commercial Department on 028 9043 4015.
