Managing the risks of COVID-19 and its aftermath - will you be litigation prepared?

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By Graham Maher, Partner

If there is any certainty in these current uncertain times, it is that businesses are being forced to adapt to constantly evolving situations, laws and regulations to address the issues posed by the Covid-19 pandemic. Reacting swiftly to those changes can be necessary for survival now, but actions taken or not taken now, without consideration of the legal consequences, can be equally fatal further down the track. In this article we discuss four simple steps businesses can take now to ensure that they are able to protect, and, if necessary, enforce or defend their rights in what may be a post-Covid 19 litigious environment.

Step 1 – understand the problem and the cause

It sounds trite, but identifying the issues you are experiencing as a result of Covid-19 and their causes is the first step in addressing and managing your legal risks. For example, if you are experiencing difficulties in manufacturing and/or supplying goods because you cannot get crucial inputs or because of workforce disruptions due to social distancing requirements, you may have contractual obligations to customers to meet, as well as contractual rights against suppliers. The enforceability of those obligations will likely depend on your contractual terms and, in particular whether they provide for relief in case of a “force majeure” event and, if so, how such events are defined in your contracts.

Other issues may arise outside the pure contractual sphere – for example, is someone behaving unconscionably toward your business, by price gouging, or otherwise taking advantage of the disadvantages you are facing as a result of the pandemic? Or perhaps you are fortunate in that the pandemic has provided opportunities for your business – how far can you go in legitimately exploiting those opportunities may depend on the nature of the opportunity and against whom it can be taken.

Whatever the issue and whatever the cause, pausing to identify the legal risks and consequences can provide valuable protection later on.

Step 2 – know your rights

Knowing your contractual rights and your rights (and obligations) under relevant laws and regulations is crucial to ensuring that the actions you take or don’t take are legally permissible.

Where a contract governs your relationship with third parties who will be affected by your conduct in response to the Covid-19 pandemic, a good starting point is to determine whether the contract has a force majeure clause and, if so, whether it covers the Covid-19 scenario and what it permits the parties to do. Questions to be considered are whether the clause allows for suspension of obligations, and if so, what are they and for how long can they be suspended. Does the clause require notice to be given of the event? Does it allow for a party to terminate the contract and, if so when?

Don’t forget to look beyond the force majeure clause. Are there other provisions which could impact, such as rights for customers to terminate the contract or to obtain supply elsewhere in the event that sufficient quantities of goods cannot be supplied? Is the customer required to purchase minimum quantities? Are there any “most favoured nation” clauses which would require a party to give or receive the same deal as other customers are receiving, which would be triggered by giving one customer favoured treatment?

Check your termination clauses and know when you or the other party can legally terminate the contract if necessary. If you don’t have a written contract, seek advice on whether your agreement can be terminated and in what circumstances, including how much notice is required to be given.

Make sure you also know what procedural requirements you need to follow. Do you have to give written notice under a contract, or do you need to take any administrative steps to avail yourself of regulatory relief or government incentives?

Step 3 – document everything and secure the evidence

There can be a real temptation in times of crisis to cast aside what would otherwise be the good business practice of recording the issues you are facing and your responses (and the reasons for them) in order to get on with the task of getting through the crisis. However, in the cold light of the post-Covid 19 world, when everyone is looking for remedies, those who can document their case will be the victors. Those who cannot do so run the risk of being unable to defend themselves against claims or unable to bring claims because they cannot establish what happened, when and why and what they did to either address the issues they caused or mitigate the issues they faced.

Taking the time to:
• create internal records (including, if necessary, privileged records of legal advice sought and received);
• retain documentary evidence (including correspondence and notes of conversations) of the actions of counter parties and other third parties (including government and other regulatory bodies);
• create appropriate records of third party conversations, arrangements and agreements;
• ensure you capture valuable corporate knowledge in the unfortunate event you have to let people go;
will be invaluable in establishing any claims made by or against you.

Step 4 – if you want to change things, give consideration to what is to be changed, when, how and for how long

For many businesses it will be necessary to negotiate changes to contracts and arrangements for the duration of the Covid 19 pandemic. Consideration needs to be given to how long those changes are to exist. For those wanting them to be short term changes only, care should be taken to document how long they will last and what is to happen afterwards. It can be easy to waive rights altogether, or worse, for actions taken to negotiate changes to be regarded as a repudiation of contractual obligations. To avoid these scenarios, make sure that the counterparty knows that, until the negotiation is concluded and the agreement is amended, you are not reneging on the deal or waiving any rights.

Need help?

Please feel free to contact Graham Maher, Peter Hodges or Kathryn Edghill of our Competition, Regulatory and Risk team whose details appear below should you require assistance with any of these steps:

For further information, please do not hesitate to contact us.

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