There are various elements of contracts for businesses to consider when re-visiting contracts or communicating with the supply chain concerning the potential impact of Covid-19.
Businesses must ensure they understand what can be done remotely in relation to the signing of documents. They should also now be re-visiting contracts and opening dialogue with other parties within the supply chain to understand the potential impact Covid-19 may have. This planning is imperative to ensure business continuity, that relationships remain commercially viable and that disputes are avoided. Uncertainty does not absolve directors of the need to act in the business’ best interests. Regulated businesses may also need to consider further requirements (such as resilience).
Contracts and the Supply Chain
There are various elements of contracts for businesses to consider when re-visiting contracts or communicating with the supply chain concerning the potential impact of Covid-19:
- Changes in law – Some contracts are drafted to protect parties against changes in law. Changes in law due to Covid-19 may fall within this type of clause.
- Force Majeure – A force majeure clause will need to be looked at closely. If a force majeure clause is included and it appears to apply to a Covid-19 situation, then are there conditions that need to be complied with and the impact determined. If a contract is silent on force majeure, the general law will not imply to such a clause.
- Material adverse change (MAC) – These clauses are often included in financial contracts to allow a party to default or refuse to perform if the other party is subject to a MAC – the wording would need to be looked at carefully and whether or not the event has or will have a material effect on performance by the party.
- Notices – If a contract contains a clause that a party wishes to rely upon – certain notice provisions may need to be adhered to strictly.
- Illegality – If, for example, places of work or movement of goods/people are forcibly closed down and it would be illegal to perform the obligations set out under the contract a party might be absolved from its obligations.
- Liability – Any contract may contain limits on liability (for example, a financial cap on losses).
- General non-performance – Does this give a right to termination under the contract? For example, if the time of performance is of the essence, would a delay lead to termination by the other party causing problems? Do KPIs need re-visiting?
- Insurance – Do parties have insurance cover for Covid-19? If so, what is the cover? What are the notification requirements?
- Frustration – This is more difficult to rely on, but if a contract does not cover the impact of Covid-19 then a business may look at the general law on frustration if a party is incapable of performance or because circumstances have changed beyond any reasonable foresight from what was contemplated. In certain circumstances, this may be worth considering.
- Governing law – If this is not English law then further advice will need to be taken.
Signing Documents When Working Remotely
With many businesses now moving to remote working, it is helpful to set out to how e-signatures work, so this can also be built into business continuity plans.
- Contracts - The signing of simple contracts, under English law, using e-signatures should be straightforward.
- Deeds - The use of e-signatures concerning deeds, under English law, are more problematic. The Law Commission has recently stated that an e-signature is capable of executing a document (including a deed) if specific requirements are met. So, what are the requirements? If an individual signs a deed (either for themselves or on behalf of a company), it must be done in the presence of a witness. That witness must be physically present in the room (i.e., not witnessing the signing remotely and care must be taken to do so in the right way).
- Do not e-sign - Do not use e-signatures where "wet ink" signatures are required. These may be documents that require notarization, documents where stamp duty is payable, or documents requiring registration with H.M Land Registry, amongst others. Also, if it is not under English law, you will need to understand the position of that jurisdiction.
- Board Minutes and Resolutions - Both board minutes and resolutions should not be problematic.
- Notices - Notices should be fine to be e-signed but do consider delivery as set out under the relevant contract/deed.
Some deeds will be able to be signed as contracts because consideration is easily identifiable, but contracts do have certain disadvantages. Consider where people live, if home working is introduced, and who has power to bind the business; and a witness should be independent of the person signing the document.