Contract renegotiation methods during COVID-19 pandemic
Since the coronavirus outbreak turned into a pandemic with global impacts, many companies turned their attention to the economic changes caused by several measures to contain the virus spread. In this regard, travel bans and orders for citizens to be quarantined, e.g., could affect great part of the obligations assumed in the contracts those companies are party to.
Several disruptions may still impair and cause breach of contract if the party (or parties) affected by the pandemic does not have a legal reason to refuse to perform its obligations, such as pay the price or deliver the goods in the date fixed by the contract. It can occur in many types of contracts, although it is commonly related to the ones whose subject is the sale of goods.
The internationally known principle of "pacta sunt servanda" admits some exceptionalities that allows a party to release itself from perform its obligation without being carried in liability. The force majeure clause is a great example of legal reason settled in a contract when it becomes difficult, onerous or even impossible to be performed by a party. Many discussions about considering COVID-19 pandemic as a force majeure event arises in both common law and civil law countries according to the examination of each contract’s content.
Pursuant to article 79 of the UN Convention on Contracts for the International Sale of Goods (Vienna Convention), a party may not be liable if its failure was due to an event out of its control. The same convention enforces in article 59 that the buyer “must pay the price on the date fixed by or determinable from the contract”. Regardless whether the contract may contain possibilities for finding a solution when the payment (or the obligation discharge) cannot occur in the fixed date, serious disagreements can be triggered.
Nevertheless, this scenario can be even worst if the business negotiation becomes a litigation, or even arbitration, issue. Besides expending money and time, the parties may miss the chance to set the best alternatives for their interests due to an event, again, out of their control. That is why recalling mediation as dispute resolution method in such case of unpredictable circumstances is important. By preserving either relationship or business from unnecessary discussion, the parties are free to set their strategic choice for preserving contract as well.
Thus, the Singapore Convention on Mediation enhances the paramount benefits of mediation to resolve commercial disputes. Such convention itself describes mediation as way to “reach an amicable settlement of their dispute with the assistance of a third person or persons (“the mediator”) lacking the authority to impose a solution […]”. And maybe that is the great advantage of using business mediation: the parties can solve the issue together, by setting an amicable deal. The imposition of a solution without the participation of the parties could affect not just the current negotiation, but the future ones too.
The focus needs to be in solutions based on the preservation of both negotiation and relationship behind this while situations such as COVID-19 pandemic occurs. Hence, it is time to mediate, not to disagree.
Retrieved from Advisory Excellence.
Originally published on April 9, 2020.