Business Interruption and Mitigation
Around the world businesses are being affected by Covid-19. Many may be unable to perform an obligation under a contract or find themselves with a supplier or service provider unable to service them. In these circumstances what can you do to protect your business.
This may be because an area is in lock-down, travel restrictions, import restrictions or due to staff illnesses. Whilst Covid-19 is unique in the action that Governments are taking to try and shut down the spread of the illness what this demonstrates is the need for businesses small and large to have a business contingency plan. These typically cover
- IT failure
- Communications failure (eg telephone system)
- Limited or no access to offices
- Adverse weather
- Loss of key personnel
Whilst these may not always be possible, and no one can legislate for the truly unexpected, what these plans do is highlight that there may be certain unexpected events which require a departure from ‘business as usual’, however, hard you try and maintain the same.
What if you cannot meet your contractual obligations or deadlines
At this juncture it is important that you check your contracts. You need to read the small print, usually in the boiler plate clauses and assess whether you have a force majeure clause. In England to be able to rely upon force majeure it needs to be within your contract.
Force majeure means something outside of your control – anything but that expected and it has prohibited the contract to be performed
If you have a Force Majeure clause then it is important that you exercise this correctly to ensure that you do not breach the contract nor wrongly invoke termination. Depending on the drafting of the clause it may not cover all effects of Covid-19, and it all depends on why you cannot perform the contract and it may change whether this is because of Government guidance, or action. If the government have forced closure and it is clear you cannot perform your role because it was outside of your hands, then it may be possible to argue this, but if you volunteer to cease work and it could easily be performed remotely then it will be far harder to argue. It is likely, given the global disruption that will be affecting many different businesses that these clauses will be carefully scrutinised.
What if you do not have a force majeure clause?
You may still be able to rely on the doctrine of frustration. This is where you can demonstrate that a contract is no longer capable of being performed due to an unexpected event. However, you need to be aware that should a contract be frustrated then it is immediately terminated at the point it became frustrated.
The doctrine of frustration is very complex and it is important that you take specific advice on whether in your circumstances this applies and whether it should be invoked in your circumstances. It may not automatically apply in respect of Covid-19 generally and therefore it is important that this is closely reviewed to protect you against future litigation.
What if your contract is with a consumer?
If you have a force majeure clause in a contract with a consumer, it is important that it is fair. This is governed by the Consumer Rights Act 2015. If it is not fair, then it will be unenforceable. , If this is the case, retaining their funds will not be upheld by the court and you will be ordered to issue a full refund, inform the consumer that you, cannot deliver their item or hold their event, whichever is applicable.
Are there any other options?
A contract can always be varied with consent. This means that you might decide that it is a good idea to approach the other party to see if something can be agreed to change the terms. This means that if you both agree to the variation then it will take effect. We always encourage early communication to preserve relationships as compromising or discussing how to address the issue early may allow you to secure future business rather than burning your bridges.
You should still check the contract to see whether you have stipulated that a contract can only be varied in writing. It is important that the terms of the contract with regards to variation are followed as carefully as possible to protect yourself from being liable for breach of contract.
FoodChain suppliers and customers
Engaging early with your stakeholders will improve the odds.
Informing your customers/clients of any changes to your services now will keep everyone informed and engaged. Customers in financial predicaments may need extended payment terms with you and some suppliers might require new arrangements. Flexibility could give you some cash flow rather than zero and ultimately a longer term relationship.
No refund just postponed?
Companies presently worried about cashflow may not be offering a full refund, but instead suggesting the delivery or event is held over to a later date. If you don’t want this, you need to look at the contract or small print as to what terms cover this and how. If this is silent on the matter you can argue your stance as you need to be put back in the position but for the contract, but extenuating times now may require more flexibility.
Check your policy see what you are covered for and when. We hear many insurers are denying claims but if you notify them in good time and carefully scrutinise your terms you may be covered. You may have a legitimate claim for this kind of disruption. Similarly, though there is a risk of a successful claim made against your business for the cancellation of services or goods so check this too.
If there are changes and delays to your service, or reduced customer demand or you are forced to close, cashflows will invariably become strained. Talk early to your suppliers about reducing their provisions and extending payment terms; speak to your bank and accountant ; seek out grants and tax deferral options
What else can you be doing?
- Have you put a plan into action for if and when staff get sick or have to isolate ?
- Can you cross train people or have a rota or have updated handover notes available ready?
- Government distancing plan in place for those that have to work
- Prepare emergency communications plan
- Plan for increased take-up of employee services / sick leave / HR resources
- Prepare policies on sick leave and compassionate leave due to COVID-19
- Plan for the needs of staff overseas
- Make arrangements to assure supplies are available during the COVID-19 event
- Consider changes to the way you deliver or sell your products or services due to COVID-19.
- Can you adapt and still service your customer base if so do you need to amend your T & C’s
If you’re now looking how to react, adapt and survive through this evolving crisis we are here for you. How your business will be impacted by the coronavirus discuss your concerns with us and read our business resilience articles for practical and legal advice.