News / Thanks to Covid-19 you may not have to Cough Up

Last Updated on 12/03/2020

Thanks to Covid-19 you may not have to Cough Up

The NHS have braced themselves. The Government have prepared themselves and have put in measures. As a small business, have you checked that you can perform your contractual obligations amid the coronavirus outbreak?

Let us break it down for you…

Whilst most responsible companies have taken measures to ensure that there is in place a protocol for staff shortages and possible self-isolation new chancellor Rishi Sunak has announced in today’s Budget 2020 that small business with less than 250 employees will be refunded the cost of statutory sick pay for up to 14 days if it is forced to pay staff due to coronavirus.

Further, he has announced that business rates will be cut to zero for companies with rateable values below £51,000 and cash grants to smaller companies to deal with the impact of the attack. This applies to firms including restaurants, shops, hotels and cinemas.  The emergency measure sees the Government setting aside up to £2 billion to small-and medium-sized businesses.

What about your company and its contractual obligations? Are you still able to perform in the eye of the coronavirus storm? What if the UK follows the Italian Governmental lockdown?

You should check your contracts and agreements immediately. What provisions are there for this type of event? They are usually found within the “Force Majeure Clause”. These clauses are typical of long-term contracts, government contracts, construction and logistics. Many Force Majeure clauses are written to allow the parties to bring the contract to an end without any blame or consequences when the contract becomes impossible or difficult to perform due to events outside of that party’s control. Sometimes, standard Force Majeure clauses are written into everyday contracts and depending on the drafting, may be drafted to cover wider events, covering the type of epidemics or pandemics such as SARS, Ebola and now COVID-19. The test remains that the event should be unforeseeable at the time of the agreement, unavoidable and impossible to overcome.

What if your contract or agreement does not have such a clause, or you have no written contract? The common law principle of Frustration may apply. The law recognises than a contractual obligation may be incapable of being performed without any party being at fault. Further, where performance is called for, the fundamental or catastrophic event causes the performance to be so different from that which was envisaged by the parties at the outset of the agreement, the law provides for the remedy of Frustration. It will allow the agreement to come to an early end through no blame or fault.

However, not every agreement or contract will benefit from reliance on Frustration. It will depend on the type of agreement and the obligations involved. The Courts rarely invoke the doctrine as the threshold for proving that the performance of the obligation is radically different from that envisaged is high one.

Brexit was denied as an event rendering a Lease frustrated in the case of Canary Wharf –v- European Medicines Agency [2019] EWHC 335 (Ch), where the High Court refused to allow EMC the right to get out of a long term, multi-million pound Lease in Canary Wharf when it found that it no longer required a headquarters in London and could not make any lawful decisions in the UK post-Brexit. The Court instead focused on the “common purpose” and whether that had been frustrated (impossible to perform). So the Court needs to consider the expected purposes of the agreement from each party’s point of view (common purpose) to see if performance will be radically different due to the intervening event.

If you think you could be affected – check your contract, consider if alternative or protective measures can be taken by your business, otherwise come and speak to us. At Clear Commercial, Manisha Modasia can review your contracts and consider the implications and provide cost effective and practical advice. Please feel free to contact her on 0161 873 2797.