In a situation that has not been experienced before, such as the one we are in now, it's important to know where you stand contractually and what legal implications there may be if you cannot provide services to others or they cannot provide services to you that are contractually bound to be fulfilled.
Many believe that to be legally enforceable, a contract must be in writing. This isn't the case for simple contracts, although there are a few exceptions. We frequently make verbal contracts without knowing it. For example, public transport: as soon as we make the payment, the transport company has a contract with us to get us to our destination safely and within a reasonable time. We're not asked to sign something every time we travel but it's deemed to be a valid contract. If something happens, e.g. a long delay, we have recourse and can claim compensation.If you believe you have a verbal contract with someone else, anything that infers this, for example an action taken by you which you would not have considered unless there had been a contract in place, or an email trail mentioning certain matters where the only conclusion is that there was a legally binding agreement, is sufficient evidence.
However, what happens if there's a valid contract that cannot be fulfilled because of some unforeseen, outside influence. For example, the situation we currently find ourselves in, where changes to our everyday routines are not only being chosen (for safety reasons) but are also being forced upon us through no fault of either party to the contract?Can a retailer, for example, sue a supplier for compensation? Well, probably not as the contract will be deemed to have been frustrated. Frustration is a doctrine in English Contract Law and is defined as an unforeseen event that renders the contractual obligations impossible to perform, thereby relieving the parties of their legal obligations. It excuses non-performance and automatically discharges (terminates) the contract.
However, some contracts may have a particular clause added in, known as a 'Force Majeure' clause. This covers relief from liability if certain events take place making it impossible to fulfil your obligations under a contract. However, the circumstances where 'Force Majeure' clauses will kick in have to be specifically identified and they usually cover unforeseen events – 'acts of God' – such as floods, war, explosions, etc.Sometimes, these clauses may also include compliance with Government rules, directives, regulations or laws or other situations, or may specifically mention other circumstances that may affect the supply of goods and services.
So, if you have a clear contract with a customer and you can still, despite the current circumstances, fulfil orders, then both you and the customer are contractually obligated to do so, and the customer is obligated to receive goods and pay for them. That said, if your customer can no longer make use of the product due to the current situation, then you may decide not to enforce the contract, but rather discuss with them a way to carry it over to better times. This will be a decision each individual business owner needs to make as they consider the future of their business and business relationships.
What about customers wishing to cancel orders?
They first need to check if the supplier can actually deliver on the contract – if they can't, then 'frustration' may apply. If they can, then you'd need to look to the 'Force Majeure' clause to see if you can exit the contract on that basis. Beyond that, you may find that legally you're obligated to complete the contract and pay the full fees. It's always best to speak to the supplier as soon as possible to try to find an amicable compromise. In both cases, remember that almost every business is suffering right now, so finding a compromise that works for both parties, will almost certainly be the best way forward. In these very difficult times where many people rely on contracts with others to survive, it's vital that, as a business owner, you know where you stand and what may be the appropriate action to take.
Amanda Hamilton is Chief Executive of the National Association of Licenced Paralegals (NALP), a non-profit Membership Body and the only Paralegal body that is recognised as an awarding organisation by Ofqual (the regulator of qualifications in England). Through its Centres, accredited recognised professional paralegal qualifications are offered for a career as a paralegal professional.