Although the World Health Organisation has declared the COVID-19 outbreak as a pandemic, it did not recommend the imposition of restrictions on trade or travel. As such, the ports in Trinidad and Tobago remain open for the purpose of facilitating trade and commerce. However, due to the regulations imposed regarding essential and non-essential services in various countries, including Trinidad and Tobago, the supply and production/service-related relationships are significantly impacted. Businesses have closed or scaled down their operations or customers are unwilling to defer delivery of goods or services, unable to accept delivery of the goods and services or are late on payments.
For contracting parties to determine their contracting rights and obligations in cross border trade, they ought to examine the contractual rights and obligations under the contract in light of the definition of “essential business” and the regulations passed by the various governments in the relevant jurisdictions in which they engage in trade.
Generally, where the provision of the goods or services is not directly impacted by regulations imposed or the effects of the pandemic, the parties to the contract will be required to perform the terms of the contract. However, where a contracting party is constrained by the current environment in fulfilling the terms of the contract, they ought to review the existing contract to determine its terms and conditions since several legal options may be available to deal with the constraints. Please see our earlier post regarding the principles of force majeure and frustration, as well as the force majeure and frustration flow chart.
However, we now take a look some alternative legal options:
Variations/amendments
The contracting parties should review the contract to determine whether they could agree to vary its terms by mutual agreement, especially those terms related to prices, payment and delivery.
The parties must ensure that the contractual formalities are complied with. For example, most commercial contracts require that variations must be agreed in writing.
This will mitigate the risks associated with a breach of the contract, especially where no payment has been made for goods and services already supplied.
Engage in A.D.R
Many contracts contain alternative dispute resolution clauses (“A.D.R”). The clause will set out how any disputes between the parties will be determined. Businesses should do what they can to protect their commercial relationships as COVID-19 is likely to affect many in the supply chain. Discussing concerns with your counter-party can be a first step towards resolving disputes.
The contract may contain an escalation clause which sets out how the parties are to resolve any dispute on a staged basis. Typically, a clause will start with structured negotiations, followed by a more formal A.D.R mechanism (such as mediation) before a binding process (such as litigation or arbitration).
waiver clause
A contract may contain a waiver clause (also known as a “no waiver” clause). The waiver clause is designed to ensure that a party’s failure to enforce its contractual rights in respect of the other party’s breach of contract does not result in the loss of legal rights or remedies.
The effectiveness of the clause will depend on its drafting and a no waiver clause will not necessarily protect a party from post-breach inaction. Sitting on a breach may amount to an affirmation of the contract.
Claim from insurers
Rather than negotiating with a contractual counterparty, a contracting party may want to consider insurance claims. Insurance coverage will depend on the policy’s specific terms and conditions. Accordingly, a detailed review of the terms and conditions of the policy of insurance ought to be undertaken since insurance companies may require the insured’s compliance with the notice provisions.
The contract may contain a requirement to insure for losses. If this is the case, a party’s liability may be limited.
Claim damages
Where a contracting party fails to perform a contractual obligation, that is still capable of being performed notwithstanding the COVID-19 pandemic, they may be liable to pay damages by way of compensation. Determining whether a contractual obligation can be completed may not be a straightforward exercise and see our earlier post for further information.
If the date has passed to complete an obligation and completion has not taken place, the contract may entitle the party who is ‘ready, able and willing’ to perform its obligations to serve a notice to complete, requiring completion to take place by a certain date. Failure to comply when served on the defaulting party to the contract may entitle the non-defaulting party to terminate the contract and/or claim damages.
Termination
In order to avoid the payment of damages, a contracting party should review the express provisions for termination. If there are specific provisions relating to the termination of the contract, the party to the contract should check whether the termination rights are capable of being invoked.
If the contract is not for a fixed period and has no right of termination, it may be terminable on reasonable notice and what is reasonable will depend on the facts of the case.
A force majeure clause may provide termination rights and the contract may be terminated by frustration. See our earlier post for further information.
If a contract is in relation to international trade, a contracting party should review the terms of the contract as it relates to the application of the law of the appropriate jurisdiction.
Conclusion
Contracting parties should review their existing contracts to identify the risks and exposures arising from the COVID-19 pandemic. Some of these potential issues have been identified above. To reduce the potential for disputes, parties can consider inserting provisions to deal specifically with these issues. As for your new contracts, if the intention is to insert a clause to deal specifically with the risks of the COVID-19, it is important to be clear as to what you are seeking to achieve and to draft the clause(s) accordingly.
