Covid-19 is having a profound effect on businesses throughout Ireland. There are a number of issues which may arise in respect of commercial contracts as a result of Covid-19. Some businesses may face disruption to their supply chain while others are forced to close in line with government restrictions. Parties may now be unable to fulfil contractual obligations as a result.
The inability to fulfil the terms of a contract may result in legal disputes over these agreements. An obligation under a contract in Ireland is enforceable in accordance with its terms in all but exceptional circumstances.
Force Majeure
Contracts may specify what is to happen in the event of certain events such as a natural disaster. A provision like this in a contract is known as a force majeure clause. This clause will come into place where said event will restrict or prevent one or both parties to the contract from performing their obligations.
A force majeure clause within a contract may suspend the obligations of the affected party until the force majeure episode has ended. A force majeure clause should be examined and interpreted carefully to understand its full scope. It may have a broad interpretation which encompasses, for instance, a pandemic. Such clauses typically include “Act of God” or “natural disaster”. As Covid-19 has been classified as a pandemic, any force majeure clause which includes the term “pandemic” may be used as a defence to non-performance of a contract. The broader the clause the more open it will be to dispute. That said, many force majeure provisions do not include a pandemic in their definition hence in these contracts, Covid-19 does not fall within the force majeure provision.
Where a party relies on a force majeure clause, the obligations of each party are delayed until the relevant event has ceased. In the current climate, a delay would seem like a more amiable approach for someone who may wish to continue working with the other party in the future.
Doctrine of Frustration
Where there is no force majeure clause or the clause does not cover a pandemic, there are other exceptional circumstances in which a court may decide that a contract has been frustrated. This arises where a contract becomes impossible to perform, is now illegal or where the performance of the contract is sufficiently different from the original contract that it would be unfair for one of the parties to carry out their obligations.
A contract will not normally be frustrated where an alternative mode of performance is possible, even if more difficult, will take longer or will be more expensive to carry out. When a contract is terminated through frustration, the parties are released from their respective obligations under the contract from the date of termination. The fact that a contract will not be completed by the agreed completion date does not necessarily mean the doctrine of frustration brings the contract to an end. This is especially relevant to construction contracts during the current crisis.
Execution of Documents during COVID-19
As a result of the Covid-19 pandemic and the restrictions in place in Ireland regarding travel and social distancing, we need to have solutions in place which enable us to carry on with business activities while complying with government regulations.
While most people are now carrying out their work from home, and face to face meetings can no longer take place, there are a number of measures a company can take to ensure that disruption of transactions is kept to a minimum.
One of the main contractual issues arising from the social distancing measures is the question of how to execute documents and whether it is permissible to execute documents by electronic signature.
Electronic signatures have been legally recognised in Ireland since the introduction of the Electronic Commerce Act 2000 (the “E-Commerce Act”). Reinforcing the E-Commerce Act, EU Regulation 910/2014 on electronic identification and trust services for electronic transactions in the internal market (the “eIDAS Regulation”), which came into force in 2016 and applies in Ireland in parallel to the E-Commerce Act, provides stricter rules for the supervision of e-signatures.
The eIDAS regulation established the principle that an e-signature should not be denied legal effect on the grounds that it is in electronic form. There are three recognised levels of e-signature under the Regulation:
- Simple e-signatures: data in electronic form which are attached to or logically associated with other electronic data and are used for signing purposes, such as typed signatures;
- Advanced e-signatures: electronic signatures which are uniquely linked to the signatory. They are capable of identifying the signatory and are designed using signature creation data that the signatory can, with a high level of confidence, use under his or her sole control; and
- Qualified e-signatures: electronic signatures created by a ‘qualified electronic creation device’ and based on a ‘qualified certificate’ for e-signatures.
The appropriate means of execution of a document depends on a number of factors. For instance, the Constitution of a company may exclude e-signatures as a means of executing documents to which the company is a party. Every transaction and contract must be reviewed on its own facts.
In the current pandemic, the use of electronic signatures will no doubt increase but whilst such signatures may prove very useful in these challenging times, care should be taken to ensure their validity in each case.
Conclusion
If you have experienced complications in the performance of a contract, it is important that the terms of your contract are reviewed, and that you take appropriate advice as to available options. The Covid-19 pandemic has and will continue to cause disruption for many Irish businesses. Irish companies are navigating unprecedented contractual challenges and our Commercial Contracts team in Crowley Millar is here to help.
If you have any queries or concerns regarding the information in this note, please contact neil@crowleymillar.com or your usual Crowley Millar contact.
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Neil Millar, Solicitor, Corporate Department (neil@crowleymillar.com)
Written by Neil Millar, Solicitor
Dated 5 May 2020
Crowley Millar Solicitors LLP Disclaimer: This is a general information note and is intended for information only. It does not constitute legal advice and should not be regarded as a substitute for legal or other professional advices. Such advice should always be taken before acting on any of the matters referenced in this information note.