Businesses will therefore have to think inventively about how best to weather this storm while maintaining the good commercial relationships that they have built up over years. That will not always be possible. With the best will in the world, strained commercial relationships will break because of the pandemic. When they do, everyone involved will need to act quickly to secure their position.
In some cases, either the contract or the common law of frustration will provide an "out" for the business by allowing termination either because of the pandemic itself or the government lockdown put in place as a result. However, termination on these grounds may apply more infrequently than a lot of people think and the courts will rightly be reluctant to allow termination on these grounds too easily. Many businesses will undoubtedly be faced with disputes surrounding their right to terminate.
Others will be left out of pocket as a consequence of an unlawful termination or breach of contract and may have to face the unwelcome prospect of litigation in order to recover what they are due. That prospect may be all the more daunting if cash is difficult to come by due to continuing tough trading conditions in their particular sector. Fundamentally, and let's not kid ourselves - no one wants to go and see their lawyer unless it's absolutely necessary. Litigation is an expensive process. But the law in Scotland changed earlier this year in a way which allows litigation between commercial parties to take place while being protected from some of the usual legal cost.
The Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, the relevant part of which came into force of 27 April 2020 allows lawyers in Scotland (for the first time) to enter into success fee agreements. Under these agreements, rather than charging fees to a client on monthly basis a lawyer is now entitled to agree to defer their fee in exchange for a share in any damages received by their client in the event of success. A success fee agreement, therefore, removes much of the litigation cost for a business.
Various companies provide insurance cover for adverse costs and outlays (such as court dues and counsel's fees) as well in the event that the litigation does not go according to plan with deferred premiums meaning that payment is only made in the event of success . The cost of these products is inevitably quite high because of the risk that the insurer is taking in providing cover in cases that don't go the right way. But competition is increasing in these markets and that will, in turn, push down that cost.
For a business with a really good claim and little money to pursue it, the availability of success fee agreements and accompanying insurance products will open up an avenue to recovery which traditionally would not have been available and which can protect them against many of the usual costs and risks of litigation. The fact that success fee agreements were introduced shortly after the start of the pandemic is a coincidence, but for many businesses it may turn out to be a welcome one.
Richard McMeeken is a partner and solicitor advocate on the litigation team at independent Scottish law firm, Morton Fraser.
This article was first published in The Herald
