How Will Corona Virus Impact Contracts?
Due to this horrific pandemic, not only are individuals suffering from isolation and loss of health but businesses are suffering. As airports shut down and shipping halts globally, trade ceases. This in turn has caused many contracts of goods and services to be frustrated.
There is trouble brewing in the frustration of such contracts in the form of dispute settlement- whether this is through litigation or arbitration. There are at least 2 ways in which one can sue for breach of contract under these circumstances:
1. Force majeure- suspending performance of an obligation under a contract or claiming an extension of time for performance due to circumstances beyond the parties’ control (i.e. traditionally also known as an “Act of God”); and
2. Frustration of a contract- a contract is discharged automatically due to circumstances that were unforeseeable at the time of entering into the contract that make it impossible to perform under the contract.
Furthermore, a contract can be frustrated by government intervening which interrupts the performance of the contract, and if the performance were resumed at a later time it would be different or impossible to perform the original contract. Typically, this has been used in times of war but the current pandemic has certainly caused many contracts of goods and services to be frustrated- specifically because governments globally have issued decrees for individuals to self-isolate and shut-down all “unnecessary” businesses (including airports).
Another way a contract may be frustrated is through supervening circumstances where it is impossible to perform the contract within the time-frame agreed upon in the contract and in the manner agreed under the contract. Construction of buildings, for example, is one of the industries that may face litigation or arbitration claims because of a government decree to self-isolate and/or cease such work until the epidemic is under control. Many of these contracts also have clauses that impose monetary penalties for contractors if the construction is not completed by a specific date.
As a result, we can expect that there will be a flood of cases being brought either in court or arbitration (depending on what your contract provides for) for breach of contract under the above causes of action. Whether such cases will succeed in court/tribunal will depend on many factors- one of them being how long the global quarantine will last.
If you would like to learn more about your particular circumstances for litigating/arbitrating in the US or EU, or how to draft your contracts going forward, please contact EAG Law Firm at firstname.lastname@example.org