The COVID-19 pandemic will likely continue for some time. To help your business adjust to these uncertain times, each day this week we are posting on what to keep in mind concerning your business’s commercial contracts. If you haven’t done so already, now’s the time to review your key supply and sales contracts and determine which critical ones are likely to be impacted the most by the coronavirus outbreak, so that you can plan accordingly. If you sell goods or services under an existing contract and no longer wish to do so because current circumstances make it economically unviable, you may be considering terminating the contract. This should be considered carefully, as this could have reputational repercussions in the current climate. You will of course need to take into account the effect of any such termination on your business relationship with your customer.
Some contracts, if they explicitly state this, allow you to terminate for convenience (i.e. without cause), so if this is an option available to you and the required notice period to terminate is sufficiently short, consider whether you wish to cut your losses. Be aware, though, that many contracts do not include provisions that allow for termination for convenience. In that case, unless you can rely on another termination provision (for example, if you think you won’t get paid from a struggling business, you could consider whether you could rely on any termination provisions for insolvency or ceasing business), it’s unlikely you will be able to end an English-law contract without breaching it. Ultimately, this will depend on the contract’s wording. Remember, if you do decide to terminate, it is important to observe any requirements set out in the contract for serving notice; if the notice is invalid, then termination may not be effective.
If COVID-19 seriously impacts on your performance of a contract, terminating it isn’t necessarily your only (or even best) course of action. Later this week, we will consider other options where performance is impacted, including variations to contracts and relying on ‘force majeure’ clauses. In the meantime, you can find more coronavirus-related resources from Collyer Bristow here.