Whilst we may have thought we heard the last of COVID-19 and its effect on business, this appears to be far from the case.
The landscape of how we do business with one another has changed drastically due to the coronavirus, therefore your terms and conditions (T&Cs) need to provide you and your business with sufficient protection.
T&Cs serve two main purposes:
- They solidify, in writing, the parties’ intentions binding them into a legal contract; and
- They protect the interest of each party. Most businesses will have a standard set of T&Cs, which are likely to not have been reviewed in years. Whilst your current T&Cs may ‘work’ for your business needs, it is important that you regularly review and refresh these to ensure they are compliant with all relevant legislation and that they still protect your interests.
Protection from COVID-19
The ‘saving grace’ in most T&Cs or contracts, is the force majeure provision.
Force majeure is typically defined as an event which is beyond the reasonable control of the affected party and which results in the affected party being unable to perform its obligations under the contract.
These clauses provide that in the case of a force majeure event, the non-performance of the affected party is excused.
Force majeure provisions usually require the affected party to demonstrate that the force majeure event ‘prevented’ it from performing its contractual obligations. For something to be ‘prevented’ means that it must be physically or legally impossible to perform, which is a high standard and requires accurate drafting.
The fall-back common-law provision is ‘frustration’, and this applies where an unforeseeable event or circumstance has made a contract impossible to perform.
In light of COVID-19 and the lack of specifically tailored force majeure provisions, the courts have construed this doctrine narrowly.
Further, given that we are now over six months into COVID-19 and that businesses have settled into the ‘new normal’, this will make relying on the frustration principle even more difficult.
It is therefore much more reliable to have a specifically drafted force majeure clause in your T&Cs to best protect your interests.
What Does a Force Majeure Clause Actually Do?
This clause will usually allow that if a force majeure event occurs then:
- The contract can be cancelled, either automatically or at the request of one of the parties
- The performing party is excused in whole or part from further performance of the contract
- Performance of any obligations are suspended for a given time or an extension is granted for future performance.
A force majeure clause is just one of the ‘belt and braces’ approaches in T&Cs. It is just one clause among others that can protect your interests.
Enforceability of a Force Majeure Clause
Force majeure clauses, if drafted correct, are enforceable, even in light of COVID-19.
With business-to-consumer contracts there are statutory provisions imposed upon businesses seeking to rely on force majeure. In doing so there are two primary considerations:
- Has it been effectively incorporated into the contract (did the other party know of or agree to the term prior to acceptance)?
- Is it a fair term in accordance with the Consumer Rights Act 2015 (CRA 2015)?
The CRA 2015 contains provisions on unfair terms. A term is unfair if it causes a significant imbalance in the parties’ rights and obligations under the T&Cs, to the detriment of the consumer.
As a result, any unfair term as such will be unenforceable. Whilst a business may want to protect its interests they cannot go over and beyond what is fair and reasonable to enter into.
If you would like us to review your terms and conditions or contracts, or assist you in creating bespoke terms and conditions for your business please contact our Corporate and Commercial Team on 0345 646 0406 or fill in our online enquiry form.