Question

Ross Enterprises has a contract with Big Steel Company Limited in respect of Information Technology (IT) Services. The contract was signed on January 1^st 2020 and will be effected on the 1^st April 2020.

In mid-February 2020 Big Steel’s sales plummeted due to the Covid 19 pandemic. In addition, an already high long term debt, and operating cost, as well as Big Steel’s current negative cash flows situation placed the company in serious financial peril. Indeed if they cannot find a resolution soon to deal with their cash flow problems and debt, they will have to close operations permanently and send all employees home.

Upon hearing this pronouncement, the Trade Union representing workers at Big Steel advised management that they will take strike action. This further affected the operations of Big Steel and resulted in a loss of production, sales and the much-needed cash flows, which is critical to pay off their debt and meet current fixed operating cost. On 3^rd March 2016, Big Steel files for bankruptcy and sent all employees home.

On the 4^th March, Big Steel wrote Ross Enterprises advising of their circumstances and the virtual impossibility of implementing the sign contact for IT Services, which is scheduled to commence on 1^st April 2020.

Ross Enterprises is adamant that they have binding arrangement and wanted to proceed as per signed contract. However Big Steel has advised Ross that certain events, covid 19, global recession and a subsequent strike has culminated for which the company has little or no control of. Thus, it was impossible to implement the contract on the agreed start date due to these circumstances.

Advise Ross Enterprises on this matter

Answer 1

If we look at the given facts and the different situations presented in the case, it is quite clear that the incidences such as the spread of COVID 19, recession, and labor strikes are some of the factors that are beyond the possible control of the company. Thus this resulted in the insolvency of the organization and due to the uncontrollable events, it is not possible for the company to continue with the contract. This cannot be seen as a breach of the contract as in the elements of the contract, it is stated that a contract is said to be discharged when there is an impossibility of act or the events that happened which are beyond the control of the party.

Thus, Rose Enterprise should accept the request of Big Steel Company Limited on account of the impossibility of act or the factors beyond control.