Morgan Russell Solicitors

How to protect your business from interruptions (extract from the June 2012 edition of Commercial Law News)

Contracts usually contain future or ongoing performance obligations that could be affected by problems with business continuity  - such as terrorism, natural disasters or traffic nightmares caused by the Olympic Games.  Under English law a party that is unwilling or unable to perform its obligations as a result would be in breach of contract, giving the other party a right to terminate the contract and/or seek damages. So, what can you do to minimise these risks or otherwise, what legal remedies do you have?

In order to avoid being in breach of contract, one option would be for the non-performing party to argue that the contract had been “frustrated” or another option could be to argue that a “force majeure event” applied (if there is such a clause in the contract).

Frustration is a legal concept that allows the automatic and immediate discharge of the contract. However, there needs to have been a significant change which either renders performance of the contract physically or commercially impossible, or too “radically different” from the original intentions of the parties. This is unlikely to be a route that is taken.

Force majeure is a commonly used contractual provision to relieve or suspend one party’s liability to perform its contractual obligations in certain defined circumstances without being in breach. Performance must be prevented by an event or circumstance beyond the reasonable control of the affected party. It gives greater flexibility if something catastrophic happens but only if the effects of the force majeure event could not reasonably have been anticipated and/or avoided. 

Business continuity planning:

Businesses should consider how they will cope in the event of a disaster and put in place adequate security measures, business continuity plans and disaster recovery procedures to cope with major operational disruptions.  It is always best to consider these things in advance and test them before they are ever needed.  Plans and procedures should be drawn up without delay – you never know when you will need them.

Business owners should also speak to their broker about appropriate insurance cover to ensure all their needs are properly covered and whether a business interruptions policy would be practical or cost-effective.

The 2012 Olympic Games and Paralympic Games are likely to have a significant impact on businesses this summer given the range and extent of them. Businesses therefore need to review if and how they will be affected and then implement solutions to deal with the effects it may have on customers, staff, contracts and the business operations in general.

For further information and items to consider read our the briefing note “Business Continuity”.

Further Information

If you have any questions regarding the above or require any assistance, please do not hesitate to contact Debbie Turner, Katya Cleere or Tim Nathan +44 (0)1372-461411.

The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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