There are certain contractual and legal rights available to parties who are managing the impact of COVID-19. These legal principles include “force majeure” and “frustration” and may be applicable to consumers and businesses across NSW. As there has been an official declaration of a worldwide pandemic, we anticipate many of these rights will be triggered due to border closures, lockdowns, travel restrictions and employee isolation.
Force Majeure
A “force majeure” clause may be included in a contract, deed or agreement and sets out what circumstances or events will excuse a party from performing or completing their obligations. It may also provide parties with the right to terminate if the circumstances or events are likely to continue indefinitely. Force majeure clauses are often included in commercial contracts however the terms differ.
With regards to COVID-19, the Government has confirmed that it will be at least 90 days before various restrictions as to trade and commerce will be lifted. If you are entering into a contract during this time, a force majeure clause should be included to determine what will happen if a party’s obligations or liabilities are unable to be fulfilled.
If your contract does have a force majeure clause, the burden is on the party seeking to rely on the clause to prove the occurrence of the event, how the event prevented performance, and non-performance was beyond either party’s control. However, even if there is an existing clause, the event must fall within its scope. This means that there may be more conditions that need to be satisfied in order to constitute as force majeure, such as the event could not have been avoided and is of no fault of either party. Many contracts contain clauses relating to epidemics, pandemics, acts of Government and natural disasters and may be able to be relied on in the absence of a specific definition of “COVID-19”. It is important to remember that there may be limiting language used within the clause, such as time limits, and to seek legal advice if you are in doubt of the available relief.
Frustration
Where there is no force majeure clause, a party may still be excused from their obligations due to the impact of COVID-19. This further method of relief is called “frustration” and it is regulated by the Frustrated Contracts Act 1978. It can be relied on where an event was not reasonably foreseeable and has made a contractual obligation impossible to perform through no fault of the parties.
A contract will only be frustrated when there is no force majeure clause in place, neither party is at fault, non-performance is permanent, and the interfering event has caused serious consequences. All of these elements must be satisfied in order for a claim for frustration to be successful.
Things to remember
If you are entering a contract (or trying to enforce a contract) during this uncertain time, we suggest you consider the following issues.
- Contractual obligations: consider how COVID-19 may impact your obligations.
- Notice obligations: In the event of a delay, consider your notice obligations to the other party. Relief may not be available if you do not provide adequate notice.
- Types of available relief: Consider your contract and assess the relief and remedies available and whether there is any risk of not fulfilling your obligations.
Under the State and Federal restrictions during COVID-19, the ultimate objective of a contract may not be able to be met. In this case, you should seek legal advice as to the enforceability of any force majeure clause, or your prospects of success of a claim for frustration. It is important to keep in mind that the parties may also renegotiate and vary the terms of a contract, by agreement, in order to move a matter forward.
Please contact a member of the Cheney Suthers team if you require further information about your contract or advice on enforcing a contract during this time.
