Contract LawHow Law Firms must align during the Pandemic?

April 17, 20200

At present the coronavirus pandemic has caused over 148,000 deaths and over 2 million people globally being affected, markets are under lockdown, causing the world economy to be alarmed. It is indeed challenging times for professionals, corporates, individuals across many industries and the legal industry too being significantly affected.

Due to many clients of legal firms having been affected, it demands continuous advisory and consulting services to resurrect their businesses, however mobility and accessibility to lawyers, legal counsels or legal professionals is questionable. Legal firms that are able to innovate, change their business model of operation, will have an edge over the others. Flexibility of commercial law firms are tested.

It is time for tech based legal firms to take the edge over other firms. Agile working programs, connecting technology to provide advisory, IT systems working from home environments, will ensure that legal firms continue to operate and offer its services.

Litigation will take a backstep, as it is drastically impacted. For litigation to happen, a physical presence in courts is often required, with judges, witnesses, court officials being present. In the present context until the situation returns to normalcy, it is highly unlikely that courts will reopen for operation.

If one is to think out of the box, commercial and corporate legal firms, facilities can operate in such an environment. It is time for companies to evaluate the option of restructuring, mergers & acquisitions, fund structuring where services and advisory of legal professionals will be of paramount importance. Business models can be re-evaluated. Evaluating commercial contracts to consider the option of enforcing their force majeure clauses is another aspect to consider.

Individuals can resort to completing their wills, probates, reorganizing their personal assets, fund management, superannuation fund etc.

Contracts are the life line of any business, as it sets out the key terms and conditions that governs the relationship between parties. Due to this pandemic, many clients are failing to meet their contractual obligations, despite their good intentions. Industries that may be particularly affected include events, tourism, manufacturing, logistics, retail and F&B. Your business may now be facing similar difficult questions in terms of how to comply with its contracts and dealing with business partners who are unable to perform.

In such instances law firms are able to support by helping them to comply with their obligations and to advise on how to make legally responsible decisions that will both sustain a business and the employees. One must filter the long term decision that will have a significant impact towards business versus short term decisions to sustain the business. The life of any business must be sustained even through the pandemic, so that at the end of the pandemic, people can commence from where it stopped. However, one must filter the controls placed by the regulator, the compliance frameworks must be factored in, so that a company does not deviate from its statutory obligations.

In such an event companies can consider the following

  • What contracts must I continue?
  • What contracts must I suspend, terminate to sustain the business?
  • What best new contracts must I enter to sustain the business in the long run?

  How to sign contracts during the Pandemic?

Signing contracts during a pandemic can be an onerous task. Contracts are generally executed in the presence of the relevant parties and certain substantial contracts also require approval from a company’s board of directors or shareholders which might not be feasible under the present circumstances given that travel is restricted in most part of the world. Therefore, companies need to come up with alternative solutions. We have set out below, certain alternate options that you can have recourse to.

  1. Most jurisdictions have laws in place permitting the electronic signing of contracts with some exceptions. This is something you can discuss with your counter party and agreed on amicably given the present circumstances. As long as the signature is reliable, appropriate and can prove that the parties have agreed to be legally bound, electronic signatures can be a helpful mechanism to execute contracts remotely.
  1. However, as mentioned above, electronic signatures may not be accepted in the execution of special documents such as wills, deeds and documents pertaining to land transactions, trust documents, powers of attorney etc.
  1. As for board or shareholder meetings, you need first check your company’s articles of association (the constitution) and see if meetings can be hosted via telephone or video conference. Most company articles also stipulate that a written resolution can be passed instead of holding a meeting.

 Complying with Contractual Time Limits

Generally, commercial contracts stipulate different time periods for service of notices, for termination, for payment or requests for time extensions. Coronavirus pandemic can have a bearing on these time requirements.

  1. Many commercial contracts include a definition for “business days”. If you want to ensure that you can meet your contractual obligations within the given time limits, you need to carefully review the definition provided for a ‘business day’. “Business Days” will often discount public holidays. In the wake of the coronavirus pandemic, many countries have declared or extended public holidays. Therefore, there is a possibility of having an extension on the performance period of your contractual obligations.
  2. In the event of an uncertainty from a contractual perspective, it is vital that you engage yourself in proactive discussions with the other contracting party. This will ensure that your business relationship is not jeopardized in the event you fail to meet your obligations stipulated in the contract.

Suspension or Termination of Contracts

The pandemic is likely to disrupt supply chains, trigger cancellations or slow down economic activities across the globe. Some businesses may find it difficult with the continued performance of certain commercial contracts leading to suspension or termination of contracts.

During a pandemic situation, you can opt to enforce the force majeure clause in your contract whereby you will be exempted from performing your contractual obligations during the pandemic given that the situation is beyond parties’ reasonable control. Coronavirus is likely to be considered a force majeure event by commercial courts which will help business in instances where the force majeure clause has not clearly spelled out what constitute a force majeure event.

How to deal with potential breaches of Contract?

Despite parties’ best intentions, there is a possibility that business will fail to meet their contractual obligations. In such circumstances, it is vital that parties remain proactive without trying to resort to legal remedies immediately.

  1. If you have reasons to believe that you are unable to perform a contractual obligation due to the pandemic, you should consider when it is realistically possible to resume performing your obligations. Communicate early with the other party and attempt to resolve the situation. Consider if it is possible to perform at least part of the contract.
  1. If it is your business partner who is the one likely to breach the contract, you should review the contract carefully to evaluate available options and take all reasonable steps to mitigate your losses as far as possible.
  1. In any case, it is best that you document in writing all the circumstances leading up to the current pandemic situation. If both parties intend to proceed with the contract, explore other options such as time extensions, contractual amendments, or waivers of certain obligations. When you reach a consensus ensure that it is in writing.

 

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