The impact of the COVID-19 pandemic on commercial contracts is inevitable. Issues of inability to perform and inadequacy of performance of contractual obligations as a result of the conditions brought about by the pandemic would be prevalent among contracting parties in the coming months.
In all these, parties to commercial contracts are likely to resort to numerous dispute resolution mechanisms to obtain remedies for losses suffered as a result of breaches of contractual obligations. Mechanisms such as mutual discussions, negotiation, mediation, conciliation, arbitration and even litigation would all be employed by contracting parties in a bid to have their commercial disputes resolved. Rather unsurprisingly, litigation is likely to be the mechanism resorted to most by contracting parties.
Regardless of which dispute resolution mechanism parties resolve to utilise, the writer advocates for what she refers to as “a practical business approach” to solving commercial disputes arising out of the covid-19 pandemic. The reasons for this caution by the writer would be elaborated in this article. Also, suggestions as to the factors to be taken into consideration in the use of the “practical business approach” in the resolution of commercial disputes would be made.
It has been touted severally by global leaders and those at the helm of fighting this pandemic that these are not normal times. As a result, there is the need to adopt an approach to life and all that comes with it from a perspective that takes into consideration the ‘abnormal’ times the world finds itself in presently. This counsel must also be taken by businesses and contracting parties who intend to recover from the negative effects of the pandemic and move on into the future. This is not to say that persons who have suffered one form of loss or the other as a result of the pandemic must give up totally on getting remedies. Rather, what the writer refers to as ‘a practical business approach’ to solving disputes must be employed not only by contracting parties, but also adjudicators alike.
What then does the writer refer to as a ‘practical business approach’? This term is the writer’s reference to an acknowledgement by contracting parties of the effects, both actual and presumed, of the pandemic in the commercial world. There is the need to accept the fact that the effects of the pandemic will be felt by all globally and as a result, practical means of resolving disputes is required. Once this is done, it is likely parties would adopt an approach to resolving disputes which does not unduly punish the defaulting party for reasons that may not have been entirely within their control. Also, commercial disputes are likely to be resolved in a speedy and effective manner.
It must be stated from the onset that the writer’s idea of a practical business approach is not an attempt to posit that the traditional legal principles and laws for the resolution of disputes are to be disregarded in resolving commercial disputes. Rather, those long-standing principles and laws are to be interpreted and applied in a manner that promotes commercial business sense and guarantees a win-win situation at the end of the day, considering the current circumstances.
What then are some of the useful tips that would ensure that disputes arising out of the pandemic are resolved using the ‘practical business approach’?
- Firstly, mutual discussions must be encouraged amongst contracting parties. A deliberate attempt must be made to resolve disputes arising from the current context amicably. Instead of immediately terminating contracts or heading to the courts or similar adjudicating fora, parties may want to firstly explore the possibility of resolving contractual disputes by themselves, without any external intervention.
The advantage of such an approach, regardless of how difficult it appears sometimes, is that it allows disputing parties to better appreciate the events leading to the breach of contractual obligations. With such understanding, they are able to fashion out solutions that take into account their peculiar circumstances. Depending on how one looks at it, encouraging and partaking in discussions may end up as a more beneficial approach, as opposed to litigation.
Obtaining reliefs from a court or similar adjudicating body, especially in a timely manner, and taking into consideration the current circumstances of the pandemic, cannot be guaranteed.
- Secondly, in the event mutual discussions fail to produce results, parties should consider resort to what is referred to as Alternative Dispute Resolution (ADR). ADR is a reference to methods of resolving disputes other than through the use of litigation (litigation being the process of solving disputes in a court of law). Some mechanisms of ADR are negotiation, mediation, conciliation and arbitration.
It is not unusual to find in many commercial contracts, clauses requiring the use of ADR as a means of solving disputes that may arise from the agreement. In fact, ADR is constantly hailed as the preferred method for settling commercial disputes as a result of the numerous advantages it has, as compared to litigation.
It takes a relatively shorter period of time to have commercial disputes resolved through ADR as compared to litigation. ADR is also sometimes a less expensive method of resolving disputes and it is certainly more flexible than litigation. The flexibility in terms of procedure, as well as the informality of ADR, is also more likely to preserve business relationships as compared to the adversarial path litigation takes. For business people, ADR also presents an opportunity to have their legal disputes resolved by a person who is likely to have the necessary expertise in their particular field of work.
- Thirdly, contracting parties must be willing to employ ‘good faith’ in finding solutions to their disagreements. Good faith is a principle of law recognized by courts in some jurisdictions (especially civil law countries) which requires parties to a contract to deal with each other fairly and in consideration of the interest of the other party, among other things. Although it has no single accepted meaning, it is generally a reference to the expectation of contracting parties to observe reasonable commercial standards of fair dealing and to avoid actions that frustrate the purpose of the agreement. It implies loyalty, fairness, sensitivity to other people’s business interests and trust.
These attributes at first glance, may sound very uncharacteristic of business relations. To the contrary, however, these are traits which when employed in business, promotes commercial success. In fact, it is not uncommon to find clauses in commercial contracts which require good faith in dispute resolution and even in the performance of contractual obligations. Due to the far-reaching effects of the COVID-19 pandemic, contracting parties ought to make a conscious effort to avoid actions that promote their interests alone, disregarding the interests of the other party.
- Also, effective scrutiny of all the circumstances surrounding the inability to perform contractual obligations must be performed in determining liability and fashioning out remedies. Admittedly, certain contractual breaches in these times would not be solely as a result of the conditions brought about by the pandemic. It is likely that defaulting parties to commercial agreements may want to hastily blame their inability to perform on the conditions created by the pandemic, without more. Such posturing not only smacks of bad faith, but also hinders effective resolution of commercial disputes. The counsel to contracting parties is to carefully consider all the circumstances leading to a breach before concluding on the likely causes. Other factors, which may have even remotely caused the breach of contractual obligations, must all be considered before settling on liability. The circumstances of the pandemic must not be used by contracting parties as a cloak to evade their contractual obligations.
- Finally, contracting parties must be willing to renegotiate commercial agreements to promote performance and avoid disputes. In the spirit of giving contracting parties the power to resolve disputes arising out of difficulties in performance, parties should consider taking a second look at the terms of earlier agreements, and making modifications if possible. Of course, a major consideration in taking this path is the possibility of a win-win situation; a renegotiation that would ensure that the interests of all parties are upheld. Contracts should not be terminated hastily. Rather, parties should take advantage of the doctrine of freedom of contract to find feasible alternatives that would ensure performance. .
It is worth mentioning that the measures suggested above relate to adjudicating bodies as well, with the necessary modifications. Mediators, arbitrators, judges and all other persons charged with the duty of adjudication would all benefit from taking the above factors into consideration when faced with commercial disputes arising out of the pandemic.
Particularly for judges and other adjudicators, there may be the need to adopt flexible approaches that would promote commercial business sense in the interpretation of commercial contracts. When faced with commercial disputes arising out of the covid-19 pandemic, the exigencies of the times must be considered in interpreting contracts. A strict, unwavering approach may not do! The abnormality of the current times must be considered in the resolution of commercial disputes, to the extent possible.
The writer is a legal practitioner and a Lecturer at the Faculty of Law of the University of Professional Studies, Accra (UPSA). You can contact her on [email protected]