So you’ve entered into a contract but you’re currently unable to fulfill the contract, because of COVID-19? If you’re worried about what you should be doing next and what will happen to your contract, I’ve set out some steps that will hopefully be useful.
1. Get clarity
First of all, get back to the contract: what exactly is it that you can’t do? Make a list of the things that you’re contractually obliged to be doing, as well as any deadlines set out in the contract.
2. Stay friends (and amend the contract)
First of all, try to stay friends with your contractual partner. We all know how small the film industry is and the last thing you want to be doing is burn any bridges – hopefully, we’ll all get back to work soon. So, get on the phone and see whether there is a way that will work for you and your business partner.
If there is: amazing! You should now be thinking about amending the original contract and here’s what you should be thinking about:
- What does the contract say about the contract being amended or varied? It might say that the contract can only be amended in writing and that there are certain notice formalities that the parties need to follow. If the contract doesn’t say anything about amendments, don’t panic! You can still amend it, if you and your partner agree.
- Whether the contract says amendments have to be in writing or not, I would advise you to amend it in writing anyway. First of all, by law, some amendments need to be in writing. Second of all, the amendment will provide you and your business partner with the certainty that none of you can turn around and accuse the other one of breaching the original contract.
3) How can you get out of the contract?
What do you do if the other party or parties don’t want to amend the contract? There are ways of ‘getting out of’ the contract – but be warned: it’s not that easy. There are two major routes: force majeure and frustration.
Is there a force majeure clause?
Whether or not your contract contains a force majeure clause or not, should be easy to spot, as they are usually called ‘force majeure’. So far so good. The force majeure clause would set out what happens to the contract if a ‘superior’ and external event intervenes which makes it impossible or illegal to fulfill the contract. Depending on the wording of the clause, such a force majeure event, would be a valid excuse to either terminate, pause or suspend the contract. Crucially, it’s only available to you, if there is a force majeure clause in the contract.
If you do have such a clause in your contract, you’ll need to read it closely first. What you can or can’t do will be determined by how that clause is worded.
- Typically, you’ll first need to establish whether the COVID-19 pandemic falls within the clause. There will usually be a list of ‘force majeure events’, i.e. a list of events that would constitute a ‘force majeure event’. There might also be a general statement to the effect of ‘anything else outside the control of the parties’.
- Depending on the clause in your contract, you might then have to prove that the pandemic is the reason that you cannot fulfill your contract. That will depend on what you should be doing now, according to the contract.
- Next, again, depending on the wording of your clause, you might have to show that you’ve tried to fulfill your contractual obligations in-spite of the force majeure event. What have you done to try and deliver your services as per the contract?
Yes there is – what happens next?
Once you’re sure that (a) the force majeure clause in your contract applies to the current situation, (2) COVID-19 is the reason that you cannot fulfil your contract obligations and (3) you’ve tried everything you could to comply with the contract, it makes sense to reach out to your contractual partner and discuss next steps.
Your contract should have notice provisions that you need to follow to rely on the force majeure clause, such as sending a notice in writing within a set timeframe. However, before sending a formal notice to your partner, I would try to go back to step 2 – stay friends – and talk it through. Chances are they don’t want you to invoke the force majeure clause and want to find an amicable way through this. Whatever you and your business partner decide to do – be it amending the contract or formally invoking a force majeure clause, it makes sense to agree everything in writing.
What if there is no force majeure clause?
As a last resort, you could try to rely on the concept of ‘frustration’. In English law, this concept allows a contract to be set apart, i.e. effectively to be dissolved and terminated with immediate effect. Because it has such drastic consequences, it’s very hard to rely on it – essentially, the courts don’t want anyone to have an easy way out of a contract. And of course, in normal times, we wouldn’t want anyone to have an easy way out of a contract!
In a nutshell, to invoke this concept, you need to show that the event that has led to your contract being ‘frustrated’ was:
- outside of your control;
- unexpected and not foreseeable; and
- has made it impossible or illegal to fulfill your contractual obligations.
Whilst (A) will be easy to prove, (B) will depend on when you entered into the contract. If you entered into the contract after the time that we knew about the virus spreading in China, things will already become difficult – you may argue that it was not foreseeable that the virus would come to Europe, but of course your contractual partner might argue the opposite. And if there is no agreement on how to deal with the contract during this pandemic, then of course they will argue the opposite of whatever you say!
Even if you manage to get past (A) and (B), you still need to prove that (C) it has now become impossible or illegal to fulfill the contract. It’s difficult to foresee how courts will deal with the wave of COVID-19 cases that will undoubtedly hit them, but we already know that the hurdle is a high one to clear. If it has simply become more difficult or expensive for you to comply with the contract, then you can’t rely on (C). It might be easier to argue that, because of the COVID-19 lockdown measures, it has become illegal for you to fulfill your contract. Again, the bar is high and remember that the current ‘corona regulations’ do allow you to leave the house for work purposes, if you have to. Of course, it all depends on what it was that you had been contracted to do and how that’s been impacted by the current pandemic.
So it all comes down to:
- Read the contract;
- Stay friends and amend the contract; or
- Rely on a force majeure clause or the concept of frustration.