Businesses will find themselves in an uncertain and challenging environment after the worst of the coronavirus pandemic is over. It is almost certain that the world will change in an unforeseen manner. In fact, the COVID-19 pandemic is being compared to the Great Depression with regards to its potential impact on the economy. There are rising fears that the economies of many nations around the world will go into free fall.
In the wake of the ongoing economic crisis and global recession, it is not unexpected that commercial legal disputes will arise. These conflicts will inevitably involve the interpretation and application of various contractual clauses, including the much-discussed force majeure clauses.
These clauses are contractual provisions inserted to safeguard parties from unprecedented and unavoidable acts, such as “acts of God,” accidents, acts of terrorism or war, strikes, and circumstances beyond the parties’ control.
Upholding Contractual Obligations during the Coronavirus Pandemic
In the current situation, contracting parties have repeatedly inquired whether they would need to uphold contractual obligations or take respite by invoking force majeure. Every contract would need a review to understand whether pandemics would strictly be covered. But with the present climate of unpredictability, it is perhaps in the best interest of all parties to not terminate existing contracts by invoking force majeure.
Companies may be in a better position to evaluate and renegotiate contracts or enter into new agreements to supersede previous contracts. The objective should be to balance equities and maintain a contractual continuity relationship to be able to resume performance obligations and accomplish the underlying goals of the contract after the restrictions are removed, and it is practically possible to achieve these objectives.
In the CARES Act, there are various measures to ensure workers are paid, employed, and allow enhancements to the healthcare system. Also, it offers financial assistance to severely impacted sectors of the economy via employee compensation limitations, suspension of aviation excise taxes, and offering a temporary relief from difficult loan restructuring, along with providing a moratorium on the foreclosure of federally backed mortgage loans.
Therefore, it is advisable for businesses to not terminate existing contracts in the current scenario. Such contracts are an essential element in the survival of any enterprise. Many contracts may already have been significantly performed by one or both parties.
It is challenging to predict the conclusiveness of the COVID-19 pandemic. In these circumstances, parties should ideally evaluate the mutual benefit of upholding existing contracts, in addition to the modalities related to the performance of contractual obligations, while developing practical and creative alternatives.
For instance, it may not be in the interest of either party to terminate a commercial lease where most of the term remains. In the case of retail outlets shut during the lockdown, but are required to pay rent for this duration, one alternative would be to enter into a revenue-sharing agreement, which can enable both parties to gain as the economy slowly revives. Such solutions can be developed for other types of contracts as well.
Mechanisms for Alternative Dispute Resolution
It may be more beneficial for parties to turn to other alternatives and more straightforward mechanisms to resolve stalled negotiations, such as conciliation and mediation, which do not have associated court procedures and are more cohesive in nature.
Conciliation and mediation have been practical tools in resolving conflict in various areas of law, such as family and marital issues, without parties having to undergo time-consuming litigation. The courts will undoubtedly be overburdened because of the coronavirus pandemic, and litigation will prove to be more expensive and tedious.
The stringent rules of procedure and evidence are not binding in the process of mediation. Instead, it operates on the tenets of justice and fairness, with due regard to the rights and responsibilities of the parties, usages of trade, and the situation surrounding the dispute.
In mediation, the parties are responsible for making decisions. The mediator guides the process, but they cannot impose any decision or settlement on the parties. Legal professionals can represent the parties. However, the proceedings remain private and are not presented in court if the parties cannot arrive at a mutually agreeable decision.
Therefore, parties should interact in an active and cooperative manner to ensure that existing contracts, which are presently in a state of suspension, are appropriately altered to proportionally or equally absorb the losses that have occurred due to the coronavirus pandemic.
To streamline the process of resuming the performance of contracts, it is crucial to balance future risks between the parties and avoid extended dispute resolution, which can only have an adverse impact on the ability of the parties to bounce back after restrictions are lifted.
Are you Involved in a COVID-19 Related Business Dispute? Speak to a Seasoned Corporate Contract Lawyer
The COVID-19 pandemic has meant unprecedented disruption for countless businesses. At this time, it is important to review and renegotiate existing contracts for the smooth operation of the business after the lockdown. The experienced corporate attorneys at Evans Law can help evaluate your existing contracts and offer reliable legal counsel in mediation and conciliation proceedings. Call (410) 626-6009 today for a comprehensive consultation with a qualified lawyer.