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Coronavirus (COVID-19)

Coronavirus (COVID-19)

Purchase and sale agreements and coronavirus

In this section you'll find information and updates related to coronavirus that are relevant to the law on buying and selling as a business.

The UK's response to coronavirus is changing regularly and often very quickly. While we'll continue to make every effort to keep this page up to date, there may be short periods where what you read here is not the latest information available. Where possible we've tried to provide links to official sources, so you can check the current situation.

Do customer/supplier contracts need to be honoured?

Business-to-business contracts

If you have a contractual obligation that you can't meet because of the outbreak, check if your contract contains a force majeure or material adverse change clause.

These allow you to freeze a contract or end it, if events are beyond your control. But the event must be listed in the clause and you must meet any conditions attached to it.

Alternatively, you could potentially argue that the impact of COVID-19 has frustrated the contract. This is when a change in circumstances makes it physically or commercially impossible to perform the contract, or would make the performance very different from the original intention. This would mean you'd be cleared from your contractual obligations. This could apply if, for example, you have to perform the contractual obligation in a region with a state-imposed lockdown.

Business-to-consumer contracts

It's possible that you have clauses in your consumer agreements that limit your liability for a delay in delivery or in fulfilling a contract. Under the Consumer Rights Act, consumers can challenge these if they are unfair.

Such clauses will have the best chance of being judged fair and enforceable if they:

  • Limit liability only for those events that are really out of your control and that are unavoidably a direct cause for the delay or non-fulfilment;
  • Require you to take all reasonable steps to avoid any delay or non-fulfilment even when faced with an uncontrollable event; and
  • Require you to inform the consumer as soon as possible of a delay or non-fulfilment that's expected due to an event outside your control, and – if the delay is at risk of being substantial – allows them to cancel with no financial penalty.

There are some helpful websites where you can find more information about what's regarded as an unfair term in a consumer contract:

Protection of supplies of goods and services

Contracts for the supply of goods or services will often allow suppliers to take action if the company they're supplying becomes subject to an insolvency procedure, e.g. by allowing them to end the contract. This helps the supplier to manage the risk of continuing to supply the goods/services but not getting paid.

The Corporate Insolvency and Governance Act 2020, however, became law on 26 June 2020 and prevents certain suppliers from making use of such clauses. This applies even if the right to end the contract arises before an insolvency procedure, but wasn't taken up (the right is suspended when the insolvency procedure begins).

This restriction doesn't apply where the company or supplier is involved in financial services, including insurance companies and banks. It also doesn't apply to suppliers that are defined as small entities. Broadly, a supplier is a small entity if at least 2 of the following 3 conditions apply to its most recent financial year:

  • Its turnover wasn't more than £10.2m.
  • Its balance sheet assets total wasn't more than £5.1m.
  • Its average number of employees wasn't more than 50.

(If the supplier is in its first financial year, these conditions are adjusted accordingly.)

If a supplier isn't a small entity, there are still exceptions. They can still end the contract if:

  • the company stops paying them (provided the contract allows that); or
  • the company agrees; or
  • a court allows it, which it can if it's satisfied that continuing the contract would cause the supplier hardship.

Late delivery of goods

If you are concerned that you won't be able to deliver goods during the pandemic on a specific pre-set date, you should instead consider specifying a date range in your contracts, e.g. 'between 1 – 10 July'.

You should also include in the terms that if you're unable to meet that date range due to stock shortages or other logistical issues, you will advise your customer and agree an alternative date range with them.

If your customer is a consumer, these dates need not fall within the default 30-day period from the date of the contract, because the consumer is agreeing to the delivery times. As a rule, where you remain unable to deliver, you should give the customer the option of cancelling without any financial implications for them and a full refund if they have pre-paid you for the goods.

Signing contracts with electronic signatures

Although strict social distancing requirements are gradually easing, contracting parties may not all be affected equally, which could still make the use of electronic signatures the only option for finalising agreements.

Electronic signatures include all signatures where the person signing does not use a pen (or other writing instrument) by hand to write directly on paper (often called a 'wet signature').

In English law, electronic signatures are not a new concept. In 2019 the Law Commission published a report confirming that electronic signatures could be used to execute (i.e. formally sign) most documents and deeds.

If the person signing the contract using an electronic signature intends to be bound by the document they're signing, and all other legal requirements such as witnessing are complied with, e-signed contracts will be just as enforceable as one signed by hand.

You have to be careful, though, when the signature is on behalf of a corporation. Ask the signatory to confirm that they have authority to sign and bind the corporation by electronic means and check the corporation's articles for any indication that electronic signatures are restricted.

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