Coronavirus – Supply chain and contractual rights/risks
Businesses should review their key contracts to establish the position on cancellation/termination and other contractual rights/risks if they think there is any risk that the Covid-19 outbreak could cause a breach.
Under normal circumstances, a claim for damages for breach of contract would be a possible remedy. However, if it is clear that the contractual failure was principally caused by an outbreak of disease, the other party may have a defence against a claim for breach if:
- there is an applicable force majeure clause in the relevant contract, or
- the legal doctrine of frustration applies.
The doctrine of frustration is applied rarely by the courts where the contract has become physically or legally impossible (without breach) to perform. This means more than simply becoming more difficult or more expensive to perform, or a business being let down by another supplier. When a frustrating event occurs, the contract ends permanently and automatically (without any action by either party), the parties are excused from further performance and are not liable for damages for non-performance. The parties have only limited statutory remedies if this causes loss.
If you are concerned about any of your contractual rights or liabilities, please contact Carys Thompson on firstname.lastname@example.org or call Carys on 0114 252 1485.