BUSINESSES need to consider what they would do if the coronavirus crisis left them unable to comply with contractual obligations, a law firm has warned.

If the government takes extreme measures such as putting a locality into quarantine, companies could find themselves in breach of contract through no fault of their own.

If there is no provision for such an emergency – such as a “force majeure” clause in the contract – businesses need to consider the legal concept of “frustration”, says Southampton-based law firm Paris Smith.

It says a “frustrating event” is one that occurs unexpectedly after a contract has been formed. It must be fundamental, going to the heart of the contract, and be beyond what the parties could reasonably have anticipated. It must not be due to fault by either party and must make further performance illegal, impossible or radically different from what was contemplated when the contract was made.

But the issue becomes trickier is the government recommends a course of action without making it compulsory.

Peter Ralls QC, a former judge working in business and commercial disputes team at Paris Smith, said: “The burden of proving a frustrating event is a heavy one.

“Any individual or company entering into any new contracts during this period of uncertainty would be well advised to make sure that a detailed and comprehensive ‘force majeure’ escape clause is carefully drafted and included.”

The firm has also issued advice for companies thinking of cancelling events, dealing a blow to the organisers, hosts, participants and attendees.

Unless there are references to cancellations in the agreement, English law says the party that does not its obligations will potentially be liable.

The exceptions are “frustration” and “force majeure” – the legal term for a specified event beyond a party’s reasonable control.

Businesses intending to use a force majeure clause will need to establish whether it specifically refers to an “epidemic”, whether there has a government decision or action that satisfies the clause, or whether the coronavirus crisis is “beyond the reasonable control of the affected party”. A host of other requirements may need to be satisfied.