Corona and contracts: tips for the future

The corona crisis has major consequences for the performance of various contracts. Products cannot be delivered, or only much later, the loss of turnover leads to payment problems or fulfillment is no longer possible at all. In a previous article, we addressed frequently asked questions regarding the impact on contracts and the possibilities. Now that the dust has settled, it is good to look to the future. How can you take situations such as the Corona crisis into account in your contracts and general terms and conditions so that you are as prepared as possible? In this article we provide a number of tips, against which you can test your contracts and general terms and conditions.

Tip 1: Force majeure

Check whether the agreements you enter into with your contracting parties or your general terms and conditions include a force majeure provision and whether it is sufficient for the future. Are Corona, epidemics and/or pandemics, or government actions explicitly mentioned as force majeure situations? And what are the consequences of invoking force majeure?

In recent months, force majeure has been frequently invoked in cases where contractual obligations could not be fulfilled. In short, a successful invocation of the legal concept of force majeure requires that you are actually unable to fulfill a contractual obligation or that this is too inconvenient in practical terms, due to a circumstance beyond your control. Whether the corona crisis justifies a claim of force majeure will have to be assessed on a situation-by-situation basis according to the circumstances of the case. For example, if a ban imposed by the government prevents delivery, a force majeure claim will probably succeed. If delivery is possible, but has become much more expensive, for example, a plea of force majeure will probably not succeed.

Many contracts and general terms and conditions contain a force majeure provision. This is because the statutory force majeure provision is regulatory, so that it can be deviated from. In an agreement or general terms and conditions, the concept of force majeure can be limited or expanded, so that a reliance on it is less likely or more likely to succeed. An agreement or general terms and conditions can also regulate the consequences of a successful invocation of force majeure, such as an obligation to renegotiate or the possibility of (temporary) suspension.

If you are the party who must deliver, for example, you will benefit from the broadest possible definition of a force majeure clause. In that case, you want as many situations as possible to be covered by the term force majeure. If you are the party who only has to pay, then the most limited force majeure clause is usually more favorable. Thus, the most favorable wording of the force majeure clause depends on your position as a contracting party. Thus, it is advisable to include in purchase and sales conditions a different provision regarding force majeure and its consequences.

Tip 2: Termination options.

See if any agreements you enter into with your contracting parties or your general terms and conditions include provisions for termination of the agreement. For example, can the agreement be terminated and/or dissolved, and if so, by whom and under what conditions?

An agreement entered into for an indefinite period of time can, in principle, be terminated. However, in many cases a notice period must be observed. A contract entered into for a definite period, for example for the duration of one year, cannot in principle be terminated prematurely, unless otherwise agreed. It is therefore important to think about the desirability of the possibility of terminating the contract and the conditions under which to do so when entering into an agreement.

Another termination option is dissolution of the contract. Under the law, this is briefly possible if the other contracting party fails to fulfill the contract. In a contract or in general conditions, the possibilities to dissolve an agreement can be extended or limited. Here, too, it is important to consider as much as possible future situations and the question under what circumstances parties may have an interest in dissolution options.

Tip 3: Modification options.

Check whether agreements you enter into with your contracting parties or your general terms and conditions include provisions that allow modification of the (terms of) the agreement. For example, can delivery dates be shifted or the price adjusted?

The corona crisis and all its consequences may lead to the fact that an agreement can no longer be performed in accordance with the original terms. In that case, it may be convenient if the contract or general terms and conditions include a provision, which offers the possibility to adjust the contract. Consider the possibility of adjusting the price under certain conditions. The content of the obligations themselves also plays an important role here. For example, delivery terms can be agreed upon, but the consequences of exceeding the delivery terms vary quite a bit. So take a good look at what the consequences are if certain agreements cannot be met.

Would you like to know more about the ways to best take into account the corona crisis and its consequences in your future contracts and your general terms and conditions? Valerie Lipman would be happy to answer your questions.

Stay up to date on legal implications of coronavirus?

• Go to pvdb.co.uk/corona
• Follow us on LinkedIn