New Contract during Covid-19 Outbreak?
Updated: Apr 4, 2020
The continuing outbreak of Covid-19 has shown no sign of improvement other than the situation in China. Giving such circumstances, if any businesses are to enter into an agreement to provide any goods or services, it is essential that the contract is to be drafted as carefully as possible to prevent any unnecessary litigation during the difficult times.
Force Majeure Clauses
Force majeure clauses are often not given the attention they deserve upfront during the negotiation of the contract. Instead, parties usually insert “boilerplate” force majeure clauses into their contracts that are not drafted to reflect the particular circumstances and positions of the parties.
Since the outbreak of Covid-19 is the ongoing circumstance, it is vital for the drafter of the contract to expect the unexpected events in giving sufficient consideration and position of the parties industry. Such events may be expressly defined as a force majeure events, like how one would expect a terrorist attack to have occurred and that such circumstances would lead to termination of the contract.
The ongoing outbreak of Covid-19 alone, without intervention of any other specific events may not suffice to invoke a general force majeure clause. This is because the contract is entered during the ongoing of the Covid-19 outbreak and the outbreak is no longer an unforseeable event.
Following, it is crucial that a force majeure clause expressly spell out as to how such clauses can be triggered, requisites to be fulfilled by the parties and the duration involved.
Parties to a contract entered during the Covid-19 outbreak do not have the advantage to rely on and invoke Force Majeure as spontaneous as contracts before the outbreak because this is a foreseeable event.
As such, parties should have definite and precisely drafted termination clauses that can give sufficient consideration to the parties' industry.
Extension of Time
During the outbreak of Covid-19, it is only reasonable to expect that there would be a shortage of workers or interruption of material, components, or goods supply. Hence it is only wise for a contract to specifically tailor the clause to allow the buffering of such shortage to prevent a party from breaching the fundamental terms of a contract.
As a rule of thumb, a contract shall be drafted as specific as possible with clarity to eliminate any unexpected interpretation of the clauses by the other party or an arbitrator or judges in the future during disputes. It is foolish for any parties, especially business representatives, to enter into any general contract, or to recycle any contract precedents as they most probably failed to manage the risk of the deal with the other party.
Hence, to balance the risk of a party to the contract, it is only wise to draft a contract as precisely as possible, which may include the specific occurrence of an event to trigger specific consequences (such as a change in price or time of delivery).
In conclusion, if parties are to enter into a contract during the outbreak of Covid-19, different considerations shall be given to the drafting of a contract, especially to the clauses discussed above. We have seen many litigations and disputes unnecessarily arise because parties have had entered into a poorly drafted contract or some might even settle for sample precedents contract which later cost them a fortune as such contract failed to manage the risk of the party. A well-drafted and tailored contract that manages the risks of the deal would save a party from unnecessary costs and damages.