Judges fear a wave of commercial cases as a result of Covid-19 © Yuttachai Kongprasert / Echoes Wire/Barcroft Media/Getty Images
Judges fear a wave of commercial cases as a result of Covid-19 © Yuttachai Kongprasert / Echoes Wire/Barcroft Media/Getty Images

Coronavirus: 'breathing space' call for firms unable to fulfil contracts

Will Green is news editor of Supply Management
27 April 2020

A group of senior judges and legal academics has called for “breathing space” for businesses unable to fulfil their contractual obligations due to coronavirus.

Following a meeting of the British Institute of International and Comparative Law (BIICL), the group said courts and tribunals could face a “wave of commercial cases, with businesses invoking their inability to meet their obligations”.

The BIICLwhich said English law was often used in international contracts with no link to the UK, said there was a “risk of a deluge of litigation” and firms should consider alternative means of dispute resolution, such as breathing space in the form of temporary relief for firms unable to fulfil contracts, and negotiation.

“Most contracts have provisions dealing with unexpected events, and the law has principles to cover this – but no one anticipated a pandemic with the disruptive effect of Covid-19,” said the BIICL in a concept note.

“As the economy begins to reopen, the best policy approach is to encourage parties to negotiate rather than focus on their contractual rights, which in any event are going to be uncertain.”

The BIICL said traditional approaches to contractual law, such as force majeure and frustration/impossibility, have “generally worked well so far”, but the current crisis “does not have a easy analogy in past case law”.

“An outcome which leaves one party a winner, and the other a loser, will not take full account of the market/social contextualisation of the crisis. Is there is a case for adopting a more creative, graded, but nevertheless rigorous approach without prejudicing the underlying need for legal certainty?” said the note.

“In the current emergency, which is a universal challenge, a debate should happen as a matter of priority on the necessary contribution of the law to safeguard commercial activity, minimise disruption to supply chains, and ameliorate the adverse effects of a plethora of defaults, by encouraging a legal environment which is conducive to optimism and a global recovery.”

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