COVID-19: Standstill agreements – short-term certainty in uncertain times?

Even during the COVID-19 global pandemic, time does not stand still on business disputes. Unless The Courts Service announces a closure of court offices (detailed information is available in our update on the operation of the courts during COVID-19) or the Irish Government legislates for a blanket suspension of limitation periods (as some governments have), claims need to be brought within the relevant limitation periods. Standstill agreements offer a possible solution to this issue during the current disruption.

What is a standstill agreement?

A standstill agreement is an agreement by all parties to maintain the status quo. The potential claimant agrees not to issue the claim immediately in return for the potential defendant effectively suspending or extending a statutory or contractual limitation period which may otherwise enable it to defend the claim as time barred.

The decision to extend or suspend a limitation period (or to refuse to do so) can have significant practical implications which should be fully considered. Standstill agreements are increasingly used in Ireland as in other common law jurisdictions, although there is little Irish case law on standstill agreements specifically in the context of statutory limitation periods. English case law (which the Irish Courts regard as persuasive) demonstrates that appropriately and carefully drafted standstill agreements will typically be upheld. Therefore the agreement needs to be carefully drafted to reflect (i) the correct parties including all parties to the dispute (and, if dealing with consumers, to ensure the terms are appropriate and comply with applicable legal requirements (such as the Unfair Terms in Consumer Contracts Regulations 1995)); (ii) all claims or matters in issue and (iii) the parties' intentions as to whether the limitation period is to be suspended or extended (and for exactly how long).

What issues could a standstill agreement address?

  • Businesses can focus on business critical issues. Whether you wish to protect your ability to bring a claim or are likely to be sued, a standstill agreement buys time. By giving the parties breathing space and avoiding potentially time-consuming litigation for an agreed period, the agreement can facilitate the parties in resolving the issues and preserve the relationship. Both parties can focus their efforts on dealing with more immediate issues in the current disruption.
  • Other solutions can be reached. Standstill agreements are usually seen as solutions to limitation issues. Yet, as with any agreement, the parties can use the opportunity to agree other temporary solutions.

An alternative to raising force majeure / contractual frustration as a defence?

  • The parties may have included a force majeure clause in their contract excusing them from performing their contractual obligations, typically in the event of circumstances outside the control of either party. Read our briefing on COVID-19 and the Force Majeure Clause in the UK and Ireland
  • In the absence of a force majeure clause, the contract could be argued to have been frustrated if the circumstance was (i) outside the parties' control (ii) unforeseen and unforeseeable and (iii) preventing the performance of the contract. Read our briefing on COVID-19 & The Doctrine of Frustration
  • The default under a force majeure/frustration approach is that the parties continue to perform the contract until the circumstance prevents them from doing so. The party in breach then raises these as defences to having not performed its obligation(s). However, these defences are fact-specific and the Courts have imposed a high threshold before finding that a contract is frustrated.
  • A standstill can allow flexibility, offering the parties an opportunity to renegotiate their contractual arrangements if necessary. This approach allows parties to be proactive in agreeing a way forward instead of waiting until one party can no longer perform its obligation(s).

Is a standstill the right solution for you?

This may be an effective and efficient solution if you are concerned about the following:

  1. You are running out of time to bring a claim. If you are unsure about the limitation period for your claim or how much time you have left to bring the claim, our team can advise you
  2. You are facing a claim. You may prefer to avoid a claim being issued against you. Instead of incurring costs on defending a claim, it may make commercial sense to agree to temporarily waive your right to defend the claim on the basis the claim is time barred (in the event it arises) in return for the other party agreeing not to issue proceedings for the same period.

For more information, please contact partners Liam Kennedy or Sarah Murphy and associates, Danielle Fleming or Don Collins, or your usual contact on the A&L Goodbody Disputes team. For advice on standstill agreements relating to debt obligations, please contact any member of the A&L Goodbody Restructuring & Insolvency team.

Date published: 7 April 2020