25 March 2020
Ensuring business continuity in these turbulent times is challenging to say the least. The difficulties posed by coronavirus are hitting the economy hard and will continue to do so for some time. One of the worst affected areas is hospitality and entertainment which has seen an immediate and fundamental impact on events and bookings.
Over the past days and weeks, restrictions on movement and trade have caused a significant impact on business with some organisations being unable to meet their obligations and others being left in the lurch. Inevitably, this has an impact on profitability and, in many cases, viability.
Many venues have closed indefinitely and events have been cancelled while custom in bars, restaurants and hotels has been severely hit.
While it might prove possible to tighten belts and cut costs in some areas, most businesses will continue to have obligations in respect of their customers, suppliers and every other party with whom they do business. When it proves difficult or impossible to discharge those obligations, it is important to consider what rights and remedies exist and that usually involves considering the terms of the contract and what was agreed by the parties.
Obviously, this is much easier when the contract is in writing, but many legally binding contracts are not in any recorded form and it is important then to consider what options are available.
Many contracts will contain a force majeure clause. This type of clause will provide that if either of the parties to the contract is unable to perform their obligations due to an event outwith their control for a period of time, that party will not be in breach of contract. As such, the party in “default” will avoid proceedings for breach of contract for their failure to perform, provided the event which has prevented performance falls within the parameters of the force majeure clause – for example, venues are being forced to cancel performances and events while advice is to avoid large social gatherings. But what then?
The effect of many force majeure clauses is that while the party in default avoids liability for a time, the “innocent” party remains liable for payment under the contract. Establishing the extent of that liability and what if any exceptions may exist is vitally important for both parties and businesses faced with such an interruption should carefully consider the terms of their contract.
In other cases, rather than a delay or interruption to business, it may simply become impossible to perform the contract. A contract may become “frustrated” where, after the contract has been agreed, a supervening event occurs which neither party had contemplated. This is slightly different to the situation where a delay or cancellation occurs – the most obvious example being if a venue is hired for a concert and burns down a day before the gig, it will be impossible to hold the event at that venue.
Businesses will have to consider their cancellation and refund policies. Payment of deposits and advances should also be considered and whether those payments were non-refundable or contingent on performance.
In many cases, insurance may cover some of the costs involved, but again it is important to check the terms of cover and, most importantly, to ensure that you do not do anything which may affect or invalidate the terms of your cover.
While uncertainty continues as to how long this situation will persist, it is important to take steps to mitigate potential losses and to establish what rights and relief you may have.
The BTO BeCreative team specialises in providing advice to individuals and organisations in the arts and entertainment industry and on protecting your commercial interests. If you have any questions, please do not hesitate to contact us:
Paul Motion, Partner and Solicitor Advocate firstname.lastname@example.org T: 0131 222 2939
Lynn Richmond, Partner email@example.com T: 0131 222 2939
Jonathan Tait, Solicitor firstname.lastname@example.org T: 0131 222 2939