• Gareth-Lee Smith

Victoria's Secret and the pandemic: a lesson for businesses

Today my attention has been brought to an article published by Legal Cheek (which you can find here). In short: the publicly-listed owner of fashion brand Victoria’s Secret was selling the brand to a private equity consortium in a deal worth over £400million. On 20th February 2020 the deal was agreed and the brand was sold.

Within days the Coronavirus was wreaking havoc. On 11th March 2020 the World Health Organisation declared a pandemic. In the ensuing period the world effectively shut down non-essential businesses. Unsurprisingly, a retailer specialising in underwear and loungewear wasn’t nearly essential enough to be allowed to remain open.

It is usual for such deals to include a term that the agreement to sell the business will be terminated in a number of situations covered by an “Act of God” clause. Usually, a pandemic such of this one would be included within such a clause. However, the Legal Cheek article reports that this particular clause excluded global pandemic, thus giving the green light for everything to go ahead.


You don't need to predict the pandemic

The Legal Cheek article asks whether the law firm representing the seller – Davis Polk & Wardwell – predicted the pandemic. It’s a bit of media sensationalism and a bit of fun, but it buries the key legal point here, and it’s one that all business owners need to think carefully about.

The key point is this: it wasn’t necessary for anybody to predict that the pandemic would happen; it was only necessary for it to be foreseen that it might happen. I wonder if the buyer’s lawyers looked at the exclusion and thought “a bit odd, but ok – we haven’t had a pandemic in my lifetime so I doubt we’ll have one any time soon!” The whole point of having terms and conditions of any kind – for an acquisition, for the purchase of a piece of machinery, for sales to consumers – is to provide a clear way forward regarding a number of matters.

For example:

· Who is responsible for insuring the piece of machinery while it travels from Italy to the UK? Is it the buyer or the seller?

· For how long will the consumer have a warranty on the new coffee grinder they’ve bought from your business? Will it be parts only, or including labour?

· What will happen if a multi-million dollar deal to buy a major fashion brand is completed, only for the world to enter near-total economic shutdown?

I recently heard legal agreements re-named as “disagreements”, and I really like this because it makes a great point. Once you get past how much something costs and when it will be delivered, you only look to rely upon your terms and conditions if and when something goes wrong and you get into a disagreement. For that reason, the terms of business that you operate under need to reflect what will happen a given scenario. You don't need to predict what will go wrong; only what might go wrong.


The lesson for your business

The lesson you can take away from this story is that you need to look carefully at the terms on which you do business. A quick drink and a handshake (in non-Covid times) might be good for getting a deal on the table in the first place, but if things start to go wrong you’ll be stuck. You need to think carefully about what might go wrong, plan for it in advance, and make sure that your terms of business reflect that. Hopefully you’ll never need to rely on the equivalent of the pandemic clause in this story, but if ever the improbable becomes reality you’ll be really glad that you planned in advance and provided for it properly in your terms and conditions.


I can help


I have seen a number of different sets of standard terms and conditions during my career. Some are very well written, and some are need of significant overhaul in order to be fit for purpose. If you want to make sure that your business is properly protected in both good and bad times, then please contact me so that we can discuss how I can help.