As commerce slows due to COVID-19, businesses will be faced with contracts they have entered into that cannot be completed. This can take a myriad of forms - business owners may no longer require the services they contracted for; delivery of essential products could be delayed; and businesses may be unable to complete contracts entirely due to lack of funds. These are just a few examples of contractual issues that will arise.
In limited circumstances, the common law will recognize excuses for non-completion of commercial contracts, pursuant to the doctrines of impossibility and frustration. These apply when it either becomes objectively impossible to perform a contract, or the entire purpose of the contract is defeated or destroyed, due to circumstances beyond the control of the parties. It may be possible to terminate a contract due to COVID-19 based on these doctrines.
Many contracts contain specific provisions outlining when a contract may become frustrated or impossible to perform, and provide a guide to the steps that should be taken by the parties in such a circumstance. Businesses are encouraged to review in detail those contracts which they feel are at risk and seek legal advice on their options.
As with tenancies, the most prudent strategy is likely to contact the other contracting party, to see if the commercial relationship can be salvaged by revisiting and changing the current agreement in light of the difficulties caused by the epidemic. Best practise would be to engage legal counsel to draft an amendment to the existing agreement, to ensure that all changes are property documented in writing to avoid future issues.
For any new contracts, businesses should take the possibility of disruption into account when putting the agreement together. An understanding in writing by everyone that services or supplies may be disrupted due to COVID-19 is essential. For example, in a construction context, one of the parties may be relying on third party suppliers for materials to complete a job. It is entirely possible that supplier cannot deliver materials as scheduled. It is therefore important for the parties to realize and note in writing that a job may be delayed if an essential supplier of goods or materials has a COVID-19 related issue.