Navigating a Crisis: Contract Disruptions and Delays—7 Key Steps

The COVID-19 crisis has disrupted deals, projects, supply chains, and other transactions across the world. To handle the resulting potential disputes, you need lawyers who understand your transaction, not just the legal elements of force majeure, impossibility, MAE/MAC, etc. Despite the recent flood of client alerts, these legal concepts are not novel—lawyers everywhere know the basic rules. The best lawyers will dig deep to learn the complex commercial context surrounding the troubled transaction. By understanding the dispute in detail, and in the context of your business needs, we will help you develop your best arguments and strategy.

Every case is different, but here are some basic steps we follow with our clients when dealing with contract disruptions or delays:

1. Determine Applicable Law. In some form, the concepts of impossibility, frustration, force majeure, etc. arise across multiple jurisdictions, but there are variations in application. Under New York law, for example, impossibility may be an excuse for non-performance even absent a specific contract clause permitting the defense. That is not so in all jurisdictions.
2. Consider the Relevant Contract Provisions. Even where an impossibility defense may be available absent a specific contract provision, the contract terms are still paramount. They may modify, narrow, or broaden the scope of permissible excuses for non-performance in a crisis. Consider the contract as a whole.
3. Take Steps to Avoid Disruption or Mitigate Damages. Parties who claim that non-performance is excused generally must show they were unable to avoid the non-performance. Parties claiming damage from non-performance need to take reasonable steps to mitigate their damages.
4. Identify Potentially Relevant Procedural Provisions. Follow the contractual process for notifying and proving up a claimed excuse for non-performance.
5. Identify Dispute Resolution Provisions. Your aim will be to avoid litigation or arbitration, but being prepared for formal proceedings is critical to winning them if you have to. Showing your preparation also is critical to achieving the best negotiated resolution, if one is available. Some contracts contain mandatory mediation or dispute escalation provisions that you will need to consider prior to formal proceedings.
6. Assess Practical Considerations Beyond this Contract. Don’t lose track of how this particular delay or disruption impacts your entire business. Do other contracts (warranties/cross-defaults/contingencies) depend on your performance of this one? Will the financial impact of this delay cause any lost opportunities? Are there public relation needs to consider? What other stakeholders need to be brought into the loop? Identifying these issues early will maximize your options.
7. Define Your “Win.” Keep the Team Focused on Achieving It. In light of all the commercial and legal realities, what is your best outcome? Agree on a budget for achieving it that contemplates all of your outside advisors, legal and otherwise. Make sure your entire team is working cohesively to stay on target and within budget. Reassess from time-to-time to gauge progress and to determine whether changing circumstances require you to adjust your ultimate goals.