With many businesses facing so much uncertainty at the moment and as commercial relationships are tested, there is every likelihood that you will face some form of business dispute as a consequence of the Coronavirus.
Whether this will be in relation to your customers, suppliers, employees or other third parties such as shareholders or contractors, there will undoubtedly be hurdles and challenges for your business to overcome.
We are here to help during these challenging times. Today, we set out some useful suggestions on what you could do to work through a dispute if it should arise.
Most business disputes will be likely to arise over your existing commercial contracts. Whilst the majority of businesses will have carefully written agreements, it is worth noting that there will also be other forms of contracts in existence, including oral versions.
How you overcome a dispute that may follow will depend on a number of factors.
When we come out the other side of the current disruption, the Courts will most likely have many months ahead of them trying to catch up. Therefore, resolving a dispute rather than litigating in the Courts, is going to be a much more attractive route, not least because it will be less expensive and achieve a faster recourse.
Some practical steps that can be taken now and moving forward, are as follows:
1. Assess your contracts
Assess your contracts carefully and if you feel that the performance of those contractual obligations may be affected, it is recommended you discuss these with your counterparties. Remember every business is going to be affected, so chances are your counterparty will have a good understanding and be willing to compromise.
It may be that as a result of those discussions, you are able to renegotiate some key contractual terms such as payment structure, fees, deliverables, etc. Do remember that if you do vary the contract, you should get some advice to formally do this and ensure that those terms are properly reflected.
2. Check your insurance policies
Are you covered for business disruption as you may be able to rely on this to cover any contractual issues that may arise and /or loss of profit?
3. Keep records of all discussions, emails and correspondence
If point 1 is not achievable, you should keep a detailed account of all discussions, emails and correspondence between you as this may be necessary in the future. Remember with a dispute, what you write or say may be used against you or scrutinised, so do think about this at all times.
4. Consider ADR or formal mediation
Consider ADR (“Alternative Dispute Resolution”) such as a round table meeting or formal mediation to resolve this rather than looking to the Courts. Commercial mediation has many significant advantages particularly in this present time. It is significantly cheaper and can also be done remotely with a skilled mediator using conferencing facilities. Often the outcomes of mediation can be more effective than a Court, because the mediator can help the parties to achieve more commercially based settlements, which a Court would not be able to do. There are other forms of ADR that could be considered.
So what happens if you cannot facilitate a variation to the Contract? Can you terminate?
This will depend on what your contractual terms are, so it is important to consider these in detail. Key express terms that may be relevant at this time are:
- Force Majeure clause
Does your contract have this clause and if so, what does it say ? Force majeure clauses are usually drafted to allow either party relief from the consequences of a failure to comply with an obligation where that failure is due to the occurrence of an event outside of its control and may allow for termination on this basis. The use of terminology in this clause will be highly relevant so you may need specific advise as to whether you can rely on this clause. It is also important to point out that this clause may also have a prescribed method for termination.
- Material Adverse clause
These are not often incorporated as standard in contracts, but, nevertheless are worth considering. These clauses usually have a high threshold of criteria to be met, before they can be invoked.
What does your contract say on remedies in the liability clause. Damages may not always be effective so it may be necessary to consider other remedies such as specific performance or negotiation in good faith for a variation.
- Warranties and Undertakings
What does your contract promise? These may need to be revised if they are not going to be achievable.
What does your contract say about the right to vary your contract.
Outside of the express terms in your contract, there is also the right to termination potentially on the grounds of frustration. A contract can be frustrated when the nature of the performance of the contract has been radically changed since it was agreed, and it is no longer possible to perform the contract.
However, this doctrine is rarely applied and is very narrow in its application, so legal advice should be sought before you seek to rely upon this as a ground for termination.
More about Coronavirus
- Is your business prepared for Coronavirus?
- 10 Ways SMEs can weather the Coronavirus storm
- A collective sigh of relief in the contracting world as IR35 postponed
- What steps should employers be taking as a result of Covid-19?
Whilst disputes are likely to be a consequence of the Coronavirus, when the business and social worlds start getting back to normal, firms like yours will need to be rebooted. To do this, you will need those commercial relationships in place, so do have this in mind when you are seeking to find a resolution.
The contentious approach should always be a last resort because commercial re-negotiations and preserving long standing relationships are likely to be much more effective as weapons against current affairs, and to maintain the longevity of your business.
If you would like any advice on your existing commercial contracts or disputes or would like some general business legal advice from the author of this article, Diane Pearce, please enter an enquiry or call us today on 020 38088314 to speak to a member of our friendly Client Care Team.
Diane Pearce is a qualified Solicitor with over 16 years’ experience in advising businesses ranging from small owner managed businesses to large companies. She is passionate about business and uses her insight to provide comprehensive and commercial advice to find business-focused solutions.
Keep up to date with the latest UK government guidance for businesses and employees at https://www.gov.uk/government/news/coronavirus-covid-19-guidance-for-employees-employers-and-businesses
Nothing in this article constitutes legal advice on which you should rely.