COVID-19: Managing contractual disputes during challenging times

The coronavirus pandemic has resulted in multiple unprecedented reactions by governments all over the world to tackle the crisis, including implementation of large-scale lockdowns and disruption of global supply chains. According to leading agencies, the pandemic and the resultant lockdown is gradually pushing the world economy into a recession.

A large number of businesses are already reviewing their contracts to check if a force majeure clause has been listed in their contracts. Businesses are also assessing the language of the clause and the extent to which such a clause can be invoked. Therefore, it is important to understand the role of force majeure and how it can impact businesses.

Potential dispute scenarios across industries

It is envisaged that default/non-performance may result in an increase in the number of disputes across sectors, some of which may get resolved by way of litigation, however, many of them may find their way to the arbitration forums for resolution.

Manufacturing, EPC, construction and Infrastructure

• Delays in shipments and implementation of large-scale projects is due to non-availability of resources such as manpower and transport.
• Customers may claim damages on account of breach of contractual obligation/significant delays leading to revenue losses.

Travel and hospitality

• The industry is severely impacted due to the ban on travel, resulting in a spike in the number of refund claims with travel operators on account of non-fulfilment of contractual Obligations.

and more…

Here is what the finance leaders should consider as they PLAN to analyse their contracts

Do your homework: Seek legal counsel to ascertain the background, specific rights and obligations and related remedies available in the case of breach and grounds for termination of the contract.

Initiate proactive discussions: Attempt to renegotiate contracts to allow for a wider purview of the termination/penalty clause and a more mutually beneficial force majeure clause that covers unforeseen events, such as COVID-19.

Consider litigation or arbitration as a last resort: If mutual way forward or alternative arrangements do not work out, consider whether litigation or arbitration should be adopted.