Does the Coronavirus change everything in the legal landscape?
Updated: Mar 25, 2020
A comparatively short time ago no one would have predicted that the Coronavirus was going to have such an impact on everybody’s lives. People just did not take it into account. Now, it may be the one thing that they do take into account above everything else.
But where does Coronavirus leave you in respect of deals you did, predicated on a different world some time ago.
If anything this puts even more emphasis on a case everybody knew was going to be important in any event. That is the European Medicines Agency case in relation to Canary Wharf where it lost in front of Mr Justice Marcus Smith in early 2019 in its arguments that the UK leaving the EU was a frustrating event in respect of the lease. That is frustrating in the technical legal sense.
The tests applied by Mr Justice Marcus Smith which many commentators considered to be correct (although the Court of Appeal has not considered it yet) threw out the idea of there being some form of frustration. The contract could still go ahead and still could be given weight and it was not suddenly turned into something meaningless.
As I rather thought it might, an old acquaintance (of whom I have not acted since the last time he got into a major litigious mire) called and said how unfair Coronavirus was. He had bought a company it was a fast food chain although a pretty small one. Hardly in the McDonalds class! Last Summer when the deal was struck, however, it seemed like a good deal the problem as usual being the ability to raise all of the capital at the same or mostly the same time. So, they did the classic. The first tranche was paid straight away as cash. The second tranche is in fact payable on Good Friday again, in cash. The third instalment is payable on the first anniversary according to an earnout formula.
And the purchase of the company’s problem is I am sure the one that you can guess absolutely.
“When I agreed to buy the company in a binding contract it was worth x but now it is worth x minus rather a lot – things have changed, times are different. Where am I going to find a couple of million quid to fork out for this now empty trendy fast food chain.”
Well of course what you have to pay and when depends on the terms of the contract.
It may just be possibly true to say that Coronavirus is a Force Majeure absolving parties from their obligation in respect of liabilities. It seems to me, however, tricky to argue that and it looks like the damage may lie as it falls. In the case of the purchaser they may well still be stuck with the purchase price as negotiated although the management will probably be stuck with the earnout amounts becoming impossible to achieve. It would seem unlikely in the circumstances that the whole deal can just be quietly called off, particularly given that people would have taken steps of reliance i.e. probably at their detriment on the basis of carrying out the terms of the contracts.
In the absence of good old fashioned negotiation to try and make this all work things both sides may have to watch out for include fancy footwork with share transfers etc. so as to diverge economic and legal ownership with obligations going in one direction and value in the other.
The whole tenet of English contract law is that the parties can agree what they like. It is why English contract law is so immensely flexible in a world of complex commercial deals. But there is, as they say, no such thing as fair in English contract law except what has been inserted by statute.
It is difficult to assess what kind of scale of problems there might be out there caused by Coronavirus in a world where existing contracts are enforced as to their black letter. That is, however, where the government comes in if at all, in terms of providing new frameworks that balance out the difficulties between the parties concerning terms they just were not expecting.
If you and your colleagues find yourselves in a similar position to that described above, then please feel free to get in touch with me or your main contact at Maddox Legal at the earliest opportunity. We are available on-line, by telephone or via a virtual meeting to help where we can in these challenging and difficult times.
Ted Mercer, Partner