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Can You Use the Pandemic to Escape Contract Obligations?

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By Neela Ramsundar

 

COVID-19 has devastated businesses worldwide. Those in Trinidad and Tobago are no exception.

Non-essential services were stopped by force of law, affecting thousands of contracts, including employment contracts, tenancy agreements, supply and delivery contracts and service agreements.

A big question on many minds is whether you can use the pandemic to escape your contractual obligations. I’m going to break this topic down to its simplest. The answer is: in some cases, yes, but in other cases, no. Which answer applies to you? Read on …

Have you heard of something called a force majeure clause in a contract? What about an “act of God”?

Many standard contracts contain a force majeure clause. In general, the purpose of this clause is to release parties from their obligations under the contract where unforeseen events (such as acts of God) make performing the contract impossible, or to defer performance until it becomes practical to continue with the contract. Acts of God typically refer to events that are considered natural catastrophes, which no one could prevent. Earthquakes, tsunamis, hurricanes, tornados, and volcanic eruptions come to mind.

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Force majeure clauses come in many variations, but one may look like this:

“In the event either party is unable to perform its obligations under the terms of this Agreement because of Acts of God, strikes, war, riots, equipment failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes.”

If your contract contains no force majeure clause, you may still have an avenue to escape. A general principle of law exists that where it is impossible to perform your contract due to unforeseen circumstances, you could be released from performance.

If your contract contains a force majeure clause, it has to be determined whether the wording of the clause can be interpreted to cover the Covid-19 pandemic as an “Act of God”.

If your contract has no force majeure clause, the burning question becomes: has the Covid-19 pandemic has made it impossible to perform my obligations under the contract?

A direct connection would have to be made between the pandemic and the fact that you did not perform your obligation under the contract. In other words, the pandemic was a direct cause for you breaching the contract.

The assistance of your lawyer would be prudent to determine where your case falls. If you have a good case, the best way forward may not be legal threats or litigation.

Everyone has been impacted by the Covid-19 crisis is one way or another. All businesses need their customers now more than ever to survive, many of whom would have been loyal to them for a long time. Try negotiation. You can do it personally, or you can use your lawyer. Put your best case forward and ask for compromise.

If that doesn’t work out, check your contract (if you have one) to see whether you have an alternative dispute resolution clause. Again, these clauses vary greatly, but here’s an example:

If a dispute arises out of or relates to this agreement, or an alleged breach thereof, and if the dispute is not settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation before resorting to arbitration, litigation, or some other dispute resolution procedure.”

If such a clause does exist, you can insist on trying to settle the dispute via whatever method is provided for (in the above example, through mediation). I don’t need a fortune teller to predict there will be a lot of lawsuits on this topic, but hopefully, you’ll not have to go there. Good luck.

Copyright © 2020 Neela Ramsundar, LL.B (HONS), L.E.C Civil Litigation Attorney at Law & Certified Mediator.

Disclaimer: The contents of this article are for general informative purposes only. It does not provide legal advice and does not create an attorney-client relationship with any reader. For legal advice on your specific situation, please contact an Attorney-at-Law of your choosing directly. Liability for any loss or damage of any kind whatsoever allegedly incurred a consequence of using content in this article is thus hereby excluded to the fullest extent permitted by law.

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