The changes to our lives and society as a result of COVID-19 have been seismic and swift. Widespread industry shutdowns and strict social distancing laws have wreaked havoc on business relationships. Parties across the supply chain have needed to adjust their day-to-day operations and re-assess the applicability of current contractual obligations.
With trade devastated across many sectors, distressed business owners are poring over fine print in search of relief. Should they find a clause that contemplates non-performance because of unforeseeable circumstances, known as Force Majeure, they just might be in luck.
Importantly, a Force Majeure clause is only likely to be enforceable in this environment should it specifically nominate a pandemic or disease as an intervening event. Attempts to shoehorn COVID-19 into a general Force Majeure clause are not likely to succeed and parties that do find an applicable Force Majeure clause will still need to satisfy various conditions to rely on it, including:
So does this leave all parties without a specific Force Majeure clause in the contractual lurch? Not necessarily. The common law doctrine of frustration, albeit limited in scope, could be a salvation.
Hardship alone is not enough for a business to rely on frustration in order to cease performance, or even terminate. The event has to fundamentally change the contractual playing field so that obligations are impossible.
One common example is Government interference. In the case of COVID-19, a business whose operations have been effectively shut down by new laws enacted by the State or Federal Government could claim frustration in order to terminate or halt performance.
For instance, a hotel might have a supply contract with a major brewery to purchase a set number of kegs every month. Because the hotel has been shut down by the Government, its owner could argue it has been ‘frustrated’ from fulfilling its obligation to continue purchasing the kegs as required by the contract.
There are many, many more real life scenarios that are emerging in this unprecedented time. Thousands of Australian businesses have been impacted by COVID-19, and presumably have been left struggling to meet their contractual
obligations.
If your business is among them, please contact us for an obligation free chat about what relief might be available.
With more than 60 years’ experience in commercial contract law, Tonkin Drysdale Partners is here to offer supportive and decisive advice to help local businesses through the current challenge.
