COVID-19: Both sides now: How to maintain commercial relationships

COVID-19 Business, but not as we know it

Both sides now

How to maintain commercial relationships

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COVID-19 Business, but not as we know it:

Both sides now

How to maintain commercial relationships The songwriter Joni Mitchell imagined clouds as beautiful poetic creations.

She also noted that they blocked the sun, and indeed rained and snowed on everyone. She was able to look at them from both sides whilst recognising the illusions they generated.

In the current unprecedented and uncertain circumstances of the coronavirus induced economic and social lockdown, canny lawyers need to be able to advise from both sides. They may be instructed at different points in a supply chain and have to deploy apparently inconsistent arguments.

Richard Harrison Partner richard.harrison@laytons.com +44 (0)20 7842 8000

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COVID-19 | Both sides now: How to maintain commercial relationships

Perspectives in the supply chain

Relevant questions

When contractual performance is uncertain a client may want to demand rights from one counter-party and refrain from performing obligations further down the chain. Applicable clauses will need to be extracted and construed and the doctrine of frustration examined to see if past precedent can be applied to the present circumstances. Arguments from the same sources will be exploited to produce different results.

Here are some of the questions to ask: Is there a clause in the relevant contract which regulates the risk of the unexpected?

This is often called a “force majeure clause” but it does not necessarily have to be described as such. They will vary in the specific details given by way of examples of the sort of events giving rise to the stated consequences and there may well be a need to construe a reference to the specific out of the general. An effective clause does not necessarily have to refer to diseases, epidemics and pandemics to be effective to cover them, but that is what you are likely to be looking for.

The standard litigators’ mindset is traditionally this: your client is the fount of injured virtue. The “other side” is wrong, unreasonable and to add insult to injury “unhelpful”. Your client is entitled to performance (or entitled to withhold performance) depending on which side of the blockage

What formalities need to be complied with in order to invoke the relevant clause effectively?

The steps you need to take may be precise in terms of

they stand. And they will want to raise the same Janus-faced

method and timing and there may be a requirement for third

arguments depending on which way they are looking.

party certification.

Can the failure to perform be causally linked to the event relied upon?

Causation is always an important issue. Whether a result is

attributable to a particular event may well need careful factual understanding and legal analysis.

Has the party seeking to rely on the clause failed to take reasonable steps to mitigate the consequences of the event in question or indeed prevent it from occurring?

You cannot rely on what might turn out to be effectively

self-induced impossibility. It may be that you can alleviate the problems by following official guidelines.

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COVID-19 | Both sides now: How to maintain commercial relationships

If there is no relevant clause, can it be said that a frustrating event has occurred?

If it has, this legal doctrine excuses the parties from further performance. The test for frustration is that an event has occurred which renders performance of the contract impossible or at least a thing radically different from that which was undertaken by the contract. Of course the facts of any particular case are important and, if you are relying on impossibility of achieving the underlying commercial

purpose of the contract rather than physical impossibility of performance, it may be necessary to analyse the allocation of risk in the original contract. This may negate the applicability

Constructive commercial and legal strategy So in this unusual and indeed unprecedented time, unless your legal position on all fronts is clearly secure in all respects and unless you hold the entire moral high ground, there is a lot to be said for constructive co-operation and compromise.

For addressing mutual benefit and aiming to identify, as the mediators say, “win-win solutions�.

of the doctrine.

What is the relationship between the duration of the supervening event and the overall timescale of the contract?

Ultimately you may want to try to enable the parties to continue a commercial relationship at least for the time being and not let malign non-human forces behind frustrating events ruin expected outcomes. If your counterparty is

This is one reason why a hopefully relatively brief lockdown

unhelpful, you can always store up your annoyance for future

period may not frustrate a long term supply or concessionaire

reference.

type contract.

When you look at the position from both sides, you will as the

And finally, what should be the consequences?

The law in summary permits recovery of sums paid and

song makes clear be able to identify the illusions generated by lack of the perspective of a broad overview. And alleviate the risk that you really don’t know law at all.

benefits conferred. A broad assessment is made depending on all the circumstances.

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Expertise

Disputes Our specialist team is experienced in avoiding, managing and resolving claims and disputes in a variety of contexts. Our work involves the identification of legal problems and solving them by effective advice and negotiation. Where necessary we use litigation in a variety of courts and tribunals.

Our clients come from a range of sectors, but they all benefit from an approach that is accessible, practical, creative and cost-effective. We aim to identify and meet each client’s particular needs in an approachable but effective way, recognising the importance of a cost-benefit analysis. We operate in an international context, and our connections with legal experts in other jurisdictions give us a full crossborder capability. We are used to dealing with injunctions and other urgent matters and regularly use alternative means of dispute resolution, such as arbitration and mediation.

John Abbott FCIArb

Robert Clark

Miriam Giorgioni

Partner john.abbott@laytons.com +44 (0)20 7842 8063

Partner robert.clark@laytons.com +44 (0)20 7842 8066

Lawyer miriam.giorgioni@laytons.com +44 (0)20 7842 8078

Richard Harrison

Paddy Kelly

Nicola Khan

Partner richard.harrison@laytons.com +44 (0)20 7842 8049

Partner paddy.kelly@laytons.com +44 (0)20 7842 8018

Solicitor nicola.khan@laytons.com +44 (0)20 7842 8028

Katherine Martyn

Rebekah Parker

Will Slater

Trainee Solicitor katherine.martyn@laytons.com +44 (0)20 7842 8000

Partner rebekah.parker@laytons.com +44 (0)20 7842 8000

Consultant will.slater@laytons.com +44 (0)20 7842 8055

Geraint Thomas

Ben Thorogood

Daniel Walter

Partner geraint.thomas@laytons.com +44 (0)20 7842 8000

Associate Partner ben.thorogood@laytons.com +44 (0)20 7842 8069

Solicitor daniel.walter@laytons.com +44 (0)20 7842 8095

Rachel Weir

David Wood

Paralegal rachel.weir@laytons.com +44 (0)20 7842 8000

Chartered Legal Executive david.wood@laytons.com +44 (0)20 7842 8000

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