Webinar
Contractual issues for charities
Contractual issues for charities
What happens to your contractual obligation if you are faced with an event outside your control, like Covid-19?
In the webinar designed especially for the charities sector, we look at the practicalities for managing contractual relationships, avoiding disputes, and looking to the future and what can be done to protect your relationships?
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Webinar transcript
(Please note this is auto-generated and un-edited)
0:39
Welcome to this webinar on the impact of Coronavirus on your charity.
0:45
My name is Martin Noble, and in this particular webinar, I'm going to be looking at some of the contractual issues that may be affecting years of charity during COVID. 19.
0:59
So what am I going to be looking at? Well, I'm going to try and give you some practical tips for managing contractual relationships, and avoiding disputes, Because no one likes to be involved in a dispute. It distracts from what you're doing and genuinely costs time and money. And, I'm also going to look out, What do you do if you're faced with an event that's outside of your control, like covert 19, for example?
1:25
And then looking to the future, what can be done to protect your contractual relationships?
1:32
Finally, going to touch on the topic of insurance, because insurance contracts are special types of contracts, and, in fact, I was asked by someone from a charity to cover this particular topic, Because it's being ads quite a lot in the press recently, because of the issues around coverage.
1:56
So what are the types of difficulties that you as a charity can be faced with during coronavirus when it relates to contracts? So, for example, you might have difficulty meeting your payment obligations.
2:13
It's well known that Cave at 19 has caused severe financial hardship. and that might mean that particular payment could not be made at all.
2:26
It's also fairly well known that it's not just PPE equipment that has been difficult to get hold of.
2:33
There's been all sorts of different types of materials that have been difficult to get hold of during kovac 19. So if you're a party that's obliged to provide some single, you're hoping to receive it, there may well be delays that have been caused directly by effects of ....
2:54
Also, they may well have been, staff and volunteers have been ill away from work, And that, therefore, has placed a burden on the charity in terms of trying to carry out its daily tasks.
3:13
Shorter, midterm goals, because of the reduced workforce and all of this culminates in making long term planning really, really difficult, and in many cases it also makes short to midterm planning really difficult.
3:33
So what I'm gonna do is I'm just going to start by looking at the nature of contracts just to unpick it slightly before we then look at some covert 19 and other contractual issues. So just bear in mind that a contract is essentially a bargain that race between two or more parties, where one agrees to do something. For example, supply, supply some equipment in return for something else by the time into money.Â
4:05
Coronavirus can impact on the ability of a party to fulfill those obligations.
4:11
So, for example, if you are the party that has agreed to supply something, and you can't, and there was a particular deadline, then you could be in breach of your contractual obligations. Equally, if you're the party that was due to pay some money under the contract, and you don't do that on time, you could also be in breach of your contractual obligations.
4:34
So, as I've said on the slide here, the issue then becomes, what happens or might happen next, And, to some extent, it does also depend whether you're the party that's affected directly, or maybe you're the party that's on the receiving end.
4:56
Now, under many contracts, there will be specific terms that actually set out what happens if a party doesn't fulfill their obligations, They effectively hold a party to account if they aren't able to hold up their side of the bargain. So, for example, it could lead to financial penalties, such, as the payment of specific additional sums in a penalty rate of interest. For example, if an invoice isn't paid on time, or what might be called liquidated damages, if a piece of equipment isn't delivered on time on schedule.
5:41
Worst, it could actually spell the end of the relationship between the parties, if one considers the contractual breech, the broken promise to be severe enough.
5:55
So for example, if something is deemed to be material, in other words, it sort of goes to the heart of the contract, the bargain rates between the parties, then it may well mean that one party can call it quits the contract, and walk away, but then potentially be able to pursue the other party for any consequential losses.
6:21
The other thing that could happen is that if a party doesn't pay, they, you know, clearly do want some equipment, for example. It could be not the party supplying, actually suspends the contract and says, Well, I'm not going to deliver anymore. If you're not going to pay you could then end up in a stalemate situation.
6:47
So if you're the effected Party, you are affected by something like coven 19. That has had an adverse impact on your ability to fulfill your obligations. Well, what do you do?
7:02
Well, some contracts have forced Michelle provisions which effectively suspend the obligations have been effected party for hours long hours. The disruption occurs.
7:17
You do have to read the clauses quite carefully because I, myself, in practice, have seen clauses that run to several pages. two clauses that start with just a, an end, rather, with a couple of lines.
7:30
They will set out usually the effects of the event, this outside of someone's control and what their household obligations and then what happens next.
7:46
So, for example, it may say that the obligations of a party are suspended for four weeks, for example. And if that event still continues, then the other party might have the rights to end the relationship.
8:03
But the difficulty you might find is that there is no false Michelle Clause, and in fact, I have this scenario come up the other day. There was no force, Michelle clause in the contract.
8:14
So, there was no specific term that could be relied upon. And that's where this principle of frustration that I've put on the slide might apply, which is a bit similar to force measure. And it's what we call a common law principle. It effectively allows a party affected by something that effectively drives a coach, and horses through the ability of the parties to do what they set out to do effectively.
8:49
Draws the arrangement to an end. What I would say though, is that it can be quite a difficult principle to rely upon if you're looking at something like Kobi ... in the context of a much longer contractual arrangement.
9:07
Where the interruption is only seen as being temporary and one where normal operations would resume fairly quickly.
9:17
My practical advice, though, is to think before you go legal and sort of start suggesting that the relationship has come to an end or that things are going to be formally suspended because there are other ways of approaching it.
9:36
Now, one of the things, I'll just pause and reflects on at the moment is, whether we've been in this kind of situation before. Now, obviously, we haven't had to deal with the effects of ... 19 before. But charities, how faced tough times.
9:52
So, for example, the 2008 crash GDPR, and also Brexit, is a recent example of things, events that have been, if you'd like outside the control of a charity, but could quite easily have had a significant impact, in terms of meeting, is contractual obligations. So, whilst the effects of covert 19 are unique, in many respects, the practical approach of dealing with contractual problems does remain the same in my view.
10:31
So, when do you deal with it? Well, the first piece of advice that I give is: don't wait for something to happen. If you can try and anticipate it, obviously, some people did try and take steps to mitigate the effects of ... before it came into the UK.
10:50
Others were much harder hit when we had things like government restrictions and locked down.
10:56
But if there is anything that you can try and anticipate in relation to a disruptive event, then do think about it in advance, and be prepared, as I've said, it doesn't always work like that.
11:11
Do look at the contractual terms that are in place, that govern the particular relationship that you are dealing with, to see if there's anything that that might help.
11:20
So, for example, there may be a force, Michelle provision that could help you. There may be suspension provisions if a party doesn't pay, for example. There may be some termination provisions, because it might actually be a relationship that needs to be ended.
11:37
There might also be some dispute resolution provisions, which allow the parties to explore alternative ways of resolving the dispute other than going to court.
11:51
And cave in 19 isn't generally written into contracts. So, what I would say is it can mean that the effects produce what I would call a legal gray area. So, therefore, it might be possible to use it to your advantage, because no one's really certain about the effects.
12:10
You might have, for example, a force monsieur provision that doesn't specifically mentioned the word pandemic or epidemic, or even ..., but finally on this slide, I'd say communication is key.
12:24
And surprises do not go down well.
12:31
So, I'd say find the middle ground, whenever the contract size, whatever the legal rights of the parties involved, it's normally possible to agree to vary the arrangement that is in place. And they, the beauty of that is that actually, the variation can take all sorts of different forms. It could be permanent, it can be temporary. They could replace the entire agreement entirely with a new set of provisions that are perhaps more fit for purpose, more fit for covert 19, and the sorts of things we're going to have to get used to.
13:10
Make sure that whatever change is put in place is well documented, also as an opportunity to try and cover off how you might approach and a ... issues in future, or anything else outside of your control. If you had an arrangement that wasn't really able to cope with that kind of change, then now's the time to about to put something in that does.
13:36
This kind of approach, communicating and trying to come up with some middle ground is normally preferable to gathering legal, certainly in the long term.
13:47
Should just mention, and, in fact, when I was first writing my notes for this, that there wasn't really any government help for anyone. Finding themselves in a situation where they had a disruptive effect.
14:03
Like coven Took 19 and had financial difficulties. For example, payment.
14:10
Payment provisions couldn't be a dead, too. And whilst we've seen government measures in relation to retail tenants and landlords, for example, we haven't seen anything in relation to if you like the ordinary day to day businesses outside of that and trading scenarios. So, I just thought I'd mention that there is actually a bill working its way through Parliament's at the moment.
14:37
It's actually added a second reading in the House of Commons on 30 June, and due to progress beyond that, which is where, for example, the effects of one company trying to pushed through some insolvency measure, like you know wind up another business. It introduces a moratorium putting it on ice period. If the other party can show that, the hardship was Caused by coven 19. So so that will be of some help to some organizations.
15:14
Now, I did say at the beginning that, I had been asked to just tack on something about insurance contracts at the end.
15:21
I've also mentioned that these are a special type of contract. They contain quite high responsibilities on the insured, more onerous than what you would find in most other contracts. And, and I would say that ensures don't always have a good reputation for paying out claims.
15:46
I suppose, if you read, actually follow stories in the media. You always have some insurers painted in a bad light for, you know, being able to rely on the fact that some relevant material information wasn't provided at the outset. And, therefore, the insurer doesn't pay out. But, as I said, that's because the insurance contract to the special type of contract and insureds must understand that they do have this duty to disclose anything relevant to the insurer.
16:15
Because they ensure, of course, is taking the risk of having to pay out if there is an insured event that takes place. Now, covered 19 and related illnesses are often mentioned in insurance contracts, and business interruption insurance cover is the topic that was asked to look out.
16:37
And the starting point is always to check to see if the policy actually covers the particular event, such as Koby at 19.
16:49
And at the moment, there are, there is a claim that is being pushed through the courts against a number of insurance to do with business interruption. It's still ongoing, has been well publicized because a number of significant insurers have refused to pay out in the light of claims made by people thinking that they were insured. So lots of people are talking about it at the moment.
17:20
Challenge was being made against insures Here are refusing to pay out because, largely speaking, they assured those concerned fell into the insurance contracts. You took them out, thought that they were covered, for example, in relation to government restrictions on Lockdown. And the difficulty is that many policies only kick in on. The wording say is that a claim can only be made if there's damage to the property. And or if the property is shut down. Because there is a notifiable disease or whatever, that, you know, someone that comes affected by at the property. And the difficulty is on that type of wording. A government shutdown which lays a business to close its doors.
18:08
You know, someone wasn't affected by ..., of the property doesn't necessarily fall, within the wording, the policy, and the actual claim might not be capable of being made as.
18:23
I say not something that's being looked at. At the moment, I would say read your policies carefully and probably follow the progressive State case that's currently being pursued at the moment by the FCPA.
18:39
Look into the future.
18:40
Just some tips, I would say, build in some resilience.
18:44
I know that's easier said than done, but look at ways of trying to cover the unknown if you like. Or events that might affect your contract relationship. one way of doing that is to actually have a shorter term contract.
19:01
So, you're not actually looking at such long term planning, it could be a contract that has more flexible terms. For example, they don't have minimum levels of supply, for example.
19:15
And also you could ensure that you have provisions like force measure that cover covert 19 type situations, and, as I said earlier, now, it's your time to try and have those written into the agreement now. So everybody knows where they stand. What they can fall back on either or both parties, if they are affected. When it comes to insurance contracts, to look at the wording, but also to go back to your original broker or seek some professional, legal advice, for example, where we're here to help in that regard.
19:54
So, thank you very much for listening, and I look forward to any questions.
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