Covid-19 and Contracts

Covid-19 and its effects on contracts

With the halting of entire industries and the slowing down of others, you may find the obligations you agreed to undertake or the obligations you set in place for someone to undertake for you may not be able to be fulfilled within a certain timeframe; if there was a timeframe to begin with. The whole country had come to a standstill with the outbreak of Covid-19 set in and is only now starting to show signs of recovery as more trades open back up for work.

Disputes over unfinished work where the obligations were set out in the contract were more straightforward before the outbreak of the Covid-19 pandemic. Now the particular wording of the contract becomes more important if you find yourself in a dispute either as the receiver of services or the provider of services.

A common clause in these contracts is a ‘force majeure’ which would excuse the delay in fulfilling contract obligations if an event happened that was out of either party’s control. Even though a pandemic is out of a party’s control, it does not necessarily mean that a ‘force majeure’ clause will cover you or the person undertaking these obligations.

Some ‘force majeure’ clauses may explicitly state a pandemic as an acceptable reason for the delay in fulfilling obligations but if this is not mentioned, the contract is more open to interpretation particularly considering whether the pandemic falls under an ‘act of God’ as this is usually used to cover in the event of natural disasters.

If the ‘force majeure’ clause does not explicitly cover against the effects of the pandemic, you may look towards a ‘frustration of contract.’ This is similar to a ‘force majeure’ as it covers against unforeseen circumstances, out of the control of either party, which make the obligations incapable of being fulfilled. However, if a contract is frustrated, the party is free of any future obligations under that contract which can either lead to the contract being terminated or the obligations are altered to something ‘radically different’ than before.

As with a ‘force majeure’ clause, in practical terms, a frustration of contract will have to be approved either by both parties agreeing or by dispute resolution.

It would be best to seek legal advice if there is potential for a dispute to arise between yourself and another party as a result. The wording of the contract can be examined to assess the likelihood of it being interpreted in your favour, whichever side of the contract you are on.

For more information, please contact Gill Vargerson at gvargerson@streetermarshall.com