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Top Tips from Ward Hadaway
Top tips for managing commercial contracts and disputes during Covid-19
18th May 2020, 6:00 pm
Over the past few weeks we have received numerous queries from clients and contacts about how to manage existing contracts, whether it is possible to terminate or vary existing arrangements and if parties are in dispute how those disputes can be dealt with whilst we are in lockdown.
We have created a microsite with a Question and Answer format which is constantly updated but in these Top Tips we have taken seven of the most popular questions.
- What should I be doing now to safeguard my position?
Many of you will have had conversations with the people you trade with. If this is the case, it is important that businesses now do their legal housekeeping and make sure they have a proper record of what has been agreed. Unfortunately, our experience shows that many legal disputes arise out of amendments to contracts, typically where the parties to the contract each have a different view about what exactly they agreed to change. We would therefore advise businesses to review any amendments that they might have agreed either verbally, by email, or otherwise, and consider whether they need to be captured in a more formal way which will make clear exactly what has been agreed to be varied, and (where appropriate) how long that variation will remain in force. Also make sure that any amendments have been made in accordance with the contract: if they have to be made in writing then make sure they are in writing.
- Can contracts or amendments to contracts be signed electronically?
The traditional approach has been for contracts to be printed and signed with a “wet ink” signature. However, this is not a strict legal requirement in the majority of circumstances and contracts can be formed without this degree of formality. English law recognises that contracts can be formed by electronic means – including the exchange of emails or the typing of a name into a document to signify agreement to it.
Whilst this approach offers a lot of flexibility, more sophisticated electronic signature tools are recommended for important documents, to enable the identity of the signatory to be validated and reduce the possibility of fraud. It is also important to ensure proper approval processes are in place.
There also remain some situations where legal advice is recommended before relying on an electronic signature:
- Where the other party is abroad – as local laws that are different from English law might apply
- If executing a deed – the law requires certain types of document to be executed as a deed (for example, transfers of land and powers of attorney), and the issues around electronic signature and witnessing are more complicated here
- Can I argue that I should be discharged from the contract? Isn’t this a Force Majeure?
It is possible that a contract could be “frustrated” and that you are discharged from your obligations by a change in the law that makes performance of a contract illegal. However, if it simply becomes more difficult, or more expensive, then the legal tests may not be satisfied. There are also limits to the application of the rule if the event was already known about at the time the contract was entered into. These types of cases are likely to be fact specific and it is important to take early legal advice. Any new contracts that are concluded should expressly deal with the possibility that performance might become more difficult, more costly, or impossible to perform.
- What if I want to terminate the contract?
If changed circumstances mean that a business wants to exit from a contractual arrangement, then before trying to terminate it, a careful review should be carried out to see whether a right to terminate actually exists – and that won’t exist in every contract. For example:
- Not every contract for the sale of goods contains the right for the buyer to terminate in circumstances where the supplier hasn’t done anything wrong. If a business has entered into a contract on the supplier’s standard terms, it is unlikely to contain any such provision
- A contract for the provision of services is unlikely, if drafted by the customer, to contain a provision that allows the supplier to walk away from the arrangement at short notice, or perhaps at all
If a party tries to terminate a contract when it doesn’t have the right to do so, the other party will likely claim breach of contract and could sue for damages. In the case of a long term or high-value contract, this could amount to a very significant liability.
- I deal with consumers – do I have to offer a refund?
Generally yes. The CMA has announced a programme of work to investigate reports of businesses failing to respect cancellation rights during the Coronavirus pandemic. It is expected that a refund will be made:
- Where a business has cancelled a contract without providing any of the promised goods or services
- Where no service is provided by a business, for example because this is prevented by Government public health measures
- A consumer cancels, or is prevented from receiving any services, because Government public health measures mean they are not allowed to use the services.
In the CMA’s view, this will usually apply even where the consumer has paid what the business says is a non-refundable deposit or advance payment.
It may be possible to offer a re-booking or a credit note, but customers should not be “misled or pressured” into accepting this. The CMA’s view is that a refund should be an option that is just as clearly and easily available. The CMA also points out that any restrictions that apply to credits, vouchers, re-booking or re-scheduling, such as the period in which credits must be used or services re-booked, must also be fair and made clear to consumers.
- I want to bring a claim in the courts – is that possible in the current climate?
Yes. Before proceedings are issued the parties are expected to take the normal steps of exchanging information about the claim. Proceedings can be issued electronically. The courts are adapting to the changed circumstances with hearings being held remotely either over the telephone or by video using platforms such as Microsoft teams. It is not a full service and the courts are prioritising certain claims depending on how urgent the need is.
- Is there anything I can do to try to settle my claim?
There are several options that can be used at this time to try and settle disputes. If it is not possible to settle a dispute via direct discussions between the parties then some form of Alternative Dispute Resolution (“ADR”) might be appropriate. Mediation is the most popular form of ADR. Most people’s perception of mediation is that it needs to be in person but that does not have to be the case.
Mediation can take place online or on the telephone. Most, if not all, ADR providers remain open for business and are quickly changing their business model to ensure that mediations can still take place. Very often mediations can be accommodated within a matter of days. The online model mirrors the process that is adopted when parties appear in person. Online mediation allows for joint sessions with the mediator to take place and also for the parties to break out into their respective rooms for private discussions. If a dispute settles at mediation – and the vast majority do – then the agreement reached between the parties is binding and can be enforced.