The effect of Covid-19 on business disputes

Anna Barnes is head of the commercial litigation team at law firm SAS Daniels LLP, here, she discusses the impact of Covid- 19 on business disputes.

As businesses in all sectors adapt to the challenges delivered by the Covid-19 pandemic, disputes have unfortunately still been arising and, in some cases, have been exacerbated by the additional pressure and restrictions.  

Whilst the Coronavirus Act 2020 has imposed restrictions on forfeiture of commercial leases for non-payment of rent (including service charges, utilities, insurance payments), the reliance on statutory demands and the presentation of winding up petitions, the management of other disputes had to swiftly move over to remote methods in March 2020. Court hearings, mediations and without prejudice meetings have all been conducted over various video conferencing platforms.  

Force majeure

Whilst courts do remain open during Lockdown 3, the directive is to keep footfall to a minimum with remote attendance being the default position. 

Contractual arrangements were impacted by the pressures of the pandemic and the imposition of lockdown and restrictions. Many businesses were left unable to perform contractual obligations or with their counter party unable to deliver. A frequent question posed to legal advisors was whether contracts had been “frustrated” and/or whether Covid-19 constituted a “force majeure” event triggering any “force majeure” clause that may be included in the terms of the particular contract. 

In such cases, the first step is to check the terms of the contract and consider whether there is a “force majeure” clause and whether it covers the event in question. If not, the doctrine of “frustration” will need to be considered. The question is: was the event unforeseeable and did it render the performance of the contract impossible, illegal or radically different from the original obligation? 

It may be that, in some cases, swift action needs to be taken to protect a business’ interests.  In other cases, it may be possible for the contracting parties to negotiate alternative terms that meet both parties’ commercial objectives whilst navigating them through the obstacles and restrictions resulting from the pandemic.  

Responsible contractual behaviour 

On 7 May 2020, the Government published non-statutory guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency.  

The guidance provides that parties should act responsibly, fairly, support the response to Covid-19 and protect jobs and the economy. Specific guidance is set out in respect of payment, extensions of time and the avoidance of and resolution of disputes. Parties are strongly encouraged to make prompt payments, especially where the payee is an SME or an individual (with less resources than a large business). Parties to commercial contracts should consider whether extensions of time for performance are possible and are strongly encouraged to resolve emerging disputes through negotiation or Mediation before they escalate.   

Business interruption insurance

The Government has, of course, introduced a package of financial support for businesses.  

Many businesses also turned to consider whether they were able to make a claim under their business interruption insurance. Businesses were faced with insurers declining cover or failing to confirm whether or not losses were covered.  This resulted in a test case being commenced in June 2020 by the Financial Conduct Authority seeking clarity about the application of certain policy wording. The policy wording of eight insurers was considered by the court.  

The High Court’s Judgment was handed down on 15 September 2020. The High Court found in favour of the policy holders on most of the key issues although the Judgment did not state that the eight insurers involved in the case were liable across the 21 types of policy wording that were considered. Each policy would need to be considered against the detailed Judgment. Permission was granted for an appeal to the Supreme Court and the hearing by the Supreme Court took place in November 2020. 

Under pressure 

The pressures and challenges of the pandemic may have led to internal disputes with fellow partners, shareholders and directors.  

In such cases, an early review of the relevant agreements and company documentation is essential to ascertain what rights and remedies each party has.  In addition, disclosure obligations and maintaining privilege where possible needs to be at the forefront of the minds of the advisors from the outset.  

In some cases, swift court action may be necessary to protect the business (especially in cases concerning confidential information and restrictive covenants) but, in many cases, an early consideration and assessment of the timely introduction of the most appropriate method of alternative dispute resolution may well be in the interests of the clients.   

Byline by Anna Barnes head of the commercial litigation team at law firm SAS Daniels LLP

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