LEGAL
Weathering the storm: top tips for facing the current economic climate
Overall the UK economy as measured by GDP is estimated to have fallen by 9.9% since 2019 which, if the estimates are confirmed, is the biggest fall since modern records began. Against this backdrop it is not surprising that businesses are struggling. In order to survive and thrive a business needs to know how to make the best of the current economic situation. Below are answers to some of the questions our SME clients are asking.
What if some of my contracts are now either impossible or unprofitable to perform? In the case of a contract which has become impossible to perform, whether because your supply chain has broken or you are prevented by Government regulation or for some other reason, then you should review the terms of the contract carefully. Many contracts will have what is known as a ‘force majeure’ clause incorporated into the terms. This provides that if something occurs beyond the control of the party impacted (sometimes called an ‘act of God’) then that party is released from the obligation that has become impossible to fulfil. Whether or not the force majeure clause applies will always depend on the particular circumstances and whether the clause wording covers those circumstances will be a matter of interpretation.
Emma Shipp Consultant
At the moment businesses are facing a perfect storm. Not only is there a worldwide pandemic causing people to stay at home, affecting buying habits and supply chains around the world, but the UK has just extracted itself from the EU single market and single customs union. 10 | Business Connexions
If the force majeure clause doesn’t cover your circumstances or there is no such clause in your contract then you can consider whether the contract as a whole has been frustrated. This means that since the contract was entered into circumstances have changed to such an extent that it is no longer possible to fulfil the contract or it has become illegal to do so. In that situation the contract itself falls away and neither party is obliged to fulfil it. Again, there is plenty of case law on what amounts to frustration and generally this can only be used in the most extreme circumstances. Using force majeure or the common law doctrine of frustration can be fraught with difficulties and, once you have reviewed your contract carefully to understand your legal rights, the best course of action in the first instance is to talk to the other contracting party or parties to try to come to a sensible arrangement that works for you all.
