UK businesses at risk of unexpected legal liabilities

Amidst the global COVID-19 pandemic, some industries, in particular, are struggling to survive. With UK government guidelines resulting in the closure or significantly reduced operations of many companies, business owners have found themselves at risk of breaching contracts.

Traditional retail stores with little or no online presence, businesses in the tourism industry, and those in the oil and gas sectors, to name a few, are struggling to succeed through the crisis. Many have closed or are operating at reduced capacity, while an exit strategy from the UK government is anticipated. As a result, many are facing choosing between breaching contracts and risking litigious action being taken against them, or, not complying with government implemented coronavirus guidelines.

Frustration of contract

England and Wales-based businesses that cannot meet the terms laid out in a contract for reasons that are no fault of either party fall under the term "frustration of contract". This is where the contract comes to an end without either party being liable to be sued for damages.

However, for the contacts to be considered "frustrated," the potential injustice must be equally weighted for each party. In the coronavirus pandemic context, determining a contract as frustrated is difficult because, in many cases, the business is still technically able to fulfill its contractual agreements. This leaves many companies vulnerable to being sued as the frustrated contract legislation does not protect them.

British businesses are being forced to ignore the government's health advice to prevent breaching their contracts and facing legal action. The impact of a large number of companies feeling pressured to overlook government advice could be detrimental to public health.

What kind of businesses are covered?

Determining what qualifies as a frustration of contract isn't necessarily straightforward, and some businesses are unsure where they stand. For example, a restaurant that also runs a takeaway service would not be covered because it is not entirely prevented from trading. Businesses who can perform some of their regular services, even though they are likely operating at a fraction of their usual capacity, are not protected.

The situation becomes even more difficult for businesses that the government has not ordered to close but have done so to comply with the guidelines and protect the health and safety of staff and customers.

Bending the rules

It is possible that as cases make their way into court, judges will bend the rules as they have done in the past during wartime. Because businesses' activities have a vast potential to impact public health, the same kind of waiving of contractual obligations could be seen again as they have done, for example, during the second world war.

However, business owners cannot wait to find out. Announcements from the UK government are eagerly awaited to help non-key businesses understand how best to act to not only protect themselves but also their staff and customers.

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