Bloomberg Law
Free Newsletter Sign Up
Bloomberg Law
Free Newsletter Sign Up

INSIGHT: Clients Need Help Managing Contractual Relationships During Covid-19

July 21, 2020, 8:01 AM

It’s become an industry consensus that disruptions of Covid-19 will cause numerous contract disputes. Law firms have put up Covid resource webpages demonstrating their expertise on contract matters; litigation funders are seeing a surge in funding applications regarding contract disputes; and on a personal level, most attorneys know someone working around the clock to advise clients on contract matters.

Lawyers can bring much more value to their clients than simply initiating or fending off contract disputes. It’s time that commercial attorneys leverage their expertise to proactively help clients review contracts that are not immediately at risk, smooth out business relationships strained by contract disputes, and plan for the long-term costs of Covid-induced contract disruptions.

Proactive Review of Contract Inventory

While many commercial litigators are already strategizing with their clients on resolutions for the contract breaches at hand, it is also important to consider the other contracts in their inventory. It is precisely those contracts that are not immediately in danger of delay or cancellation that present the greatest opportunity for transactional lawyers to make a difference in their clients’ businesses.

By conducting a proactive review of the clients’ contract inventory, lawyers can help clients identify and manage potential risks in the future. For example, in a disrupted global supply chain, delivery of manufacturing parts can be delayed due to Covid.

Naturally the first response from the client and their lawyer would be to find a resolution for the breached contract. But it would also serve the client to review their agreements for the other orders for the next 12 months.

Relevant questions in this scenario include:

  • What contractual obligations and provisions do the future contracts specify? How could the client remediate disadvantageous provisions that now seem apparent?
  • What alternatives does the client have that would minimize the risk of contract breach? Should the client renegotiate the said future contracts?
  • Should the client include language saying that COVID is a foreseeable situation that would not be included in any force majeure clauses?

While answers to the above questions vary from client to client, attorneys who ask these questions can play an important role in ensuring the client’s business continuity. By initiating a proactive review of the client’s contract inventory, a transactional lawyer may bring additional business value to their practice.

Litigation as a Business Tool

As suggested by the current surge in commercial litigation, many attorneys are now preoccupied with helping their clients navigate contract disputes. With the stress of litigation weighing on everyone involved, lawyers will reasonably de-prioritize the review of future contracts and focus solely on the imminent litigation.

This is not to say, however, that transactional lawyers do not have any additional values to offer in a litigation setting. On the contrary, transactional lawyers have a unique insight to help clients reduce the friction litigation imposes on business relationships, and it starts with a paradigm shift to see litigation as a tool in their toolbox, but not the only instrument.

Litigation is often seen as an aggressive act relating to some personal animus, but it is important for business owners to understand that litigation does not indicate spite. Rather, it is a business means often used by a smaller party who wishes to address complaints in a more formal way.

Jonathan Polak, litigation partner at Taft Stettinius & Hollister, made a similar point in a podcast interview with Legalist. He said, “Litigation is just a tool to get to the necessary business transaction that needs to occur. If we as litigators look at litigation that way, then we are doing our clients a greater service than looking at it purely through the legal landscape.” Polak’s perspective on litigation rings especially true in the context of contract disputes, given the fact that many contract cases are filed with the intent not to terminate, but to renegotiate the underlying contracts.

If clients can see contract litigation as a means to an end, not an end in itself, then it is much easier to maintain business relationships amid contract disputes. As clients’ trusted counsel on contract matters, transactional lawyers have a unique opportunity to help clients understand the business logic behind litigation and enable the clients to evaluate their existing partnerships in a more objective way.

Long-Term Cost Management

Commercial litigators may provide additional value to their clients by initiating a discussion on the clients’ long-term legal costs. Clients require clarity around the financial impact of litigation, but the current economic uncertainty makes cost management a top concern.

Together, attorneys and clients can determine the economics of their specific contract cases, and strategize for an optimal financing approach. Factors to consider may include legal fees for prolonged litigation, potential insurance recoveries, and long-term revenue losses caused by the contract breach.

This type of assessment is a common practice for attorneys working with contingency agreements, but it is worth mentioning still because it enables clients to approach long-term business planning with legal costs in mind.

If the accounting shows the client in stellar financial standing, then it provides additional confidence in the case. However, if the accounting reveals a financial vulnerability, then an early assessment will afford the client sufficient time to seek alternative financing options, whether it is traditional bank loans or litigation funding.

Either way, helping a client entangled in contract disputes better manage their legal spending is a very valuable deed, and contributes significantly to the client’s business continuity.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Curtis Smolar is the general counsel of Legalist with over 20 years of litigation practice. Previously, he was a commercial litigation partner at Fox Rothschild LLP, an Am Law 100 firm, representing clients such as Paypal, Ebay, and Bank of America.

Robbie Li is a marketing assistant at Legalist. He researches and writes about litigation finance, litigation trends, and legal careers.