Businesses globally have required to deal with the aftermaths of lockdown and what has been one of the world’s biggest force majeure events. The shape of the average contract might also be about to change. There are some predictions trends in commercial contracts, as businesses come to clauses with life after great lockdown.
Force Majeure Clauses
The lockdown highlighted that they force majeure be key provisions that allocate risk and have serious effects. Not all force majeure terms are the same, and the lockdown has challenged the drafting of many, with some counterparties taking liberal interpretations to give themselves rights of termination that may not have been intended. Clauses may require contemplating the possibility of both parties being the affected party and the average period specified for force majeure events will probably be a longer. Now parties paying more attention to these terms, with more tailored regimes setting out who, how and when a party may rely on the term, and the rights and duties of the respective parties that apply while a force majeure event subsists.
Expect to see more parties asking key suppliers to provide “Remote Preparedness Plans” that demonstrate a supplier’s ability to maintain continuity of supply through a lockdown or other emergency. Businesses will always require complying with the clauses of an Order from the Director-General of Health, but most of us now have a concise view on the value of being prepared in advance for business continuity in times of emergency or swift change.
Agreements that grant exclusivity of supply to a supplier typically include carve outs that permit the purchasing customer to get services from a third party – for instance, where the supplier is not able to supply. The pandemic caused disruptions to supply chains, and carve outs to many provisions regarding exclusivity will have been triggered. Parties negotiating exclusivity provisions will be more relied on these carve outs going forward.
The above clauses all regard to consequences that apply to specific contractual duties in the context of another lockdown or similar event. Parties may select to add new wording in individual provisions or alternatively they may prefer to have a “COVID-19 pandemic” terms that deals with all of the aftermaths and implications of another lockdown in one place. Irrespective of how the parties wants to add to record any new COVID-19 certain arrangements, the relationship between those new arrangements and the force majeure, termination and suspension provisions will need to be concise.
Above all the great lockdown highlighted the possibility of signing documents when not everyone could print, scan, sign, and return a draft from house, forcing people to move towards signatures electronically. The regulations around electronic signatures are not specifically straight forward, and not all electronic signatures are equal. We will see an increase in the usage of electronic signing software not just for future lockdowns, but also to help flexible working arrangements. Standard counterpart clauses may also evolve to expressly allow parties using electronic signatures according to Part 4 of the Contract and Commercial Law Act 2017.
The extent to which a business will seek to address COVID-19 related risk issues in their contracts going forward will depend on many factors, such as the terms, nature, and value of the agreement, the services provided, the parties’ existing relationship, and their relative dealing power. While common themes will apply to all, everyone will have slightly different interests to protect. We don’t envisage standard forms COVID-19 terms appearing any in near future.