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Covid-19 Fixing broken contracts by mediation

The problem

The cause of the problem is always simple. Someone, somewhere is unable to perform in his/her usual time line or skill.

The effect is also very simple. You are unable to perform adequately or at all.

In most cases, your problem is urgent. You probably bear no grudge, but a contract is a contract. You are under pressure. It is essential to your financial well-being that you pass on some of that pressure.

Unlike most mediation disputes, you have common ground with your conflict-party. The most important interest for both of you, including your financial interests, is to get back to business as successfully as possible.

You and your conflict party probably even share the same desired outcome – to get back to normal – fast and efficiently.

Of course, it cannot be taken as given that both the parties do in fact want to be able to continue to perform an existing contract. If a buyer no longer has customers, can it be said that he is free to breach the contract simply because he cannot sell what he has ordered? As I write, the World is awash with oil. The present price of a barrel of oil is negative because the cost to the producer of disposing of product which he cannot sell is greater than its value to someone who has a few million swimming pools they could use to store the surplus.

The solution

Unlike most commercial disputes, you are not looking to penalise your conflict-party. You just want your ship back on the proper route before the waves turn it over.

Unlike most commercial disputes, the task of your mediator is not so much to test your assumptions, and prompt you to consider possibilities and outcomes, but rather to take a more proactive role in helping you to identify the best new way your contract can be taken forward, usually so that trade between you can continue.

The best solution for both conflict-parties is not merely for trade to continue now but for the ground rules to be sufficiently flexible to deal efficiently with today’s emergency but also, even more flexible, to continue without interruption through the inevitable changes of the next 12 months.

Assessment of your contract

Your mediator’s first task is to understand your existing contract. That might be a superbly worded precise document, or it could be simply the standard terms of one side or the other, or it could be word-of-mouth, exchanged over a number of telephone conversations, or it could be simply referenced to the past dealings over a number of months or years.

What is the law

This is the great unknown. This is at the opposite end of the spectrum from the law we all know something about like the Law of Property Act 1925 or the Landlord and Tenant Act 1954. There is no law dealing with how a pandemic in 2020 should affect contractual relations. There is not even any case law – but I feel sure there soon will be.

You have to consider:

  • What the contract says. That is the deal you agreed so we have to start there. Certainly, we have to consider how the Court would construe it. There will also be other terms in the contract. Some will be of minor importance. Others will be critical. What is the effect of the breach on, for example, delivery dates, quantity delivered, timing of delivery, quality of product, quality and timing of support. There are almost certainly more.
  • Force majeure – ancient French meaning an event no one could do anything about. But there’s no law that says it applies absolutely. What matters is what the contract says. Does it apply or does it not? If yes, under what conditions, if any?
  • Are there any overriding conditions in the contract which result in one party being absolutely in breach and the other not at all?
  • How might the Court react to quasi legal issues with a moral element? (Presumably not at all but there could be exceptions)
  • Could the fifth legal term “frustration” be applied. This does not refer to your emotional state as commonly used today, but as a situation which occurs unexpectedly in a way which is not covered by the terms of the contract. It fits Covid 19 quite well. However, there remain issues as to what either party could do, or could be expected to do to improve on “nothing”. You can’t just abandon a contract and claim it was frustrated because you had to take your mother to hospital.
  • All of commerce relies on a constant chain of providers and customers. How far is it relevant, if at all, that your liability to your customer, or alternatively the breach by your provider, is caused up the line or down the line.
  • Finally, there is a whole basketful of considerations relating to the respective status of you and your conflict-party. Specifically, are you both business to business or is one a consumer. How far does consumer law apply in a situation like this? If you operate an airline or a hotel, do you have an obligation to repay consumers for your failure to provide the service they have already paid you for? Will the government make new law to help you. If yes, what will it be, how will it help, what proportion of your loss will cover? When will the money come through?

Solutions your mediator could address

Most UK mediators practice what is usually referred to as facilitative mediation. That does not mean the mediator sits on her/his hands waiting for ideas to come from the participants. Neither does it mean that he/she will be encouraging a settlement based on ideas they have put forward which may, like one of Baldrick’s cunning plans, later appear to be less of a good idea than at first considered.

In the USA, and probably elsewhere too, many mediators take a somewhat stronger line in that they are prepared to propose ideas, explain possible legal outcomes, and even assist the parties in drawing a settlement agreement.

It is my opinion that contract problems arising from the pandemic can best be resolved by a mediator who is prepared to move some of the way to the “evaluative” mediation process I have mentioned above.

The principal justification and reason for this is that the outcome must have as strong a basis in law as possible. Where facilitative mediation explores many imaginative and exciting possibilities, the interests of the participants which we are discussing here are far more limited by the essential emphasis on the contract itself – no matter what form it takes.

Despite that legal basis which provides the position of the parties in terms of their contract, your mediator may well be able to contribute both with positive ideas, and a legal sounding board, too many propositions which could be viable both for today, for tomorrow and for next year.

If you have a contract problem you think I might be able to help you to resolve, just start by registering and telling me a little about it. Together we can crack it FAST.

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