Terminating or Renegotiating? The Aftermath of Covid-19 on Commercial Contracts

Abstract

Covid-19 has been a stress test for commercial contracts, sometimes making performance impossible, sometimes making it more costly. The response fashioned by the most influential contract laws of the world has been varied. While the common law galaxy is traditionally restrictive in the face of contractual contingencies and tends to deny judicial remedies which may interfere with party autonomy, continental European legal systems have proved more sensitive to channeling the pandemic event into the civil law doctrines already consolidated in the written codes and strengthened as a result of the reforms of recent years. This paper will firstly explore the remedies available in the main contract laws to govern impossibility or hardship connected with the Covid-19 pandemic, exposing a tension between the liberal approach of the common law inspired by the pacta sunt servanda principle and the ‘social’ continental experiences revolving around good faith and constitutional solidarity. It will then exploit the outcomes of this comparative analysis to confront arguments for and against termination or renegotiation of commercial contracts affected by the pandemic. Finally, it will argue that contracting parties should remain free to renegotiate their contract, failing which the court should not have the power to adapt it to supervening circumstances, as the only remedy should be the termination of the agreement.