What a surreal start to 2020 it has been - starting with widespread bushfires and now Coronavirus. It feels a bit like we need a restart.
The impact of the bushfires and now the measures being put in place in respect of Coronavirus are having, and will continue to have, a significant impact on businesses and individuals across the country. The question for a lot of businesses is what position you will be in at the end of all this - will you be able to sit back and enjoy a beer (or something stronger).
It raises with it a raft of legal issues, ranging from what a business can do with its employees, solvency and financing issues, leases and the business structures that are in place.
One area where we are seeing a great deal of uncertainty relates to a business’ contracts with other individuals or businesses and the performance of those contracts.
By now most people will have heard the reference to ‘force majeure’ clauses.
These are clauses in a contract which allow the parties to either suspend, cancel, or terminate a contract in certain circumstances, without being liable for any losses incurred by the other party.
These clauses will typically specify that they will apply for events that are outside the control of both parties- so called ‘acts of god’. Importantly, this will not typically extend to matters such as the contract becoming more expensive or difficult.
The question of whether Coronavirus or the measures put in place as a consequence of it will trigger a force majeure clause in a contract will depend on whether the contract defines matters such as a pandemic, government intervention or similar. While some contracts may set out specific events, other contracts may not.
Even where there contract does not contain a force majeure clause, it may be possible for a contract to no longer apply. This would be on the basis that the contract has been ‘frustrated’ as a result of Coronavirus. Frustration occurs when an event outside the control of the contracting parties causes a situation that is fundamentally or radically different from what was contemplated at the time of executing the contract. For example, a contract for the supply of hand sanitiser- at the time of contracting there was an abundant supply and now the situation is radically different, causing performance to be impossible.
The end result of the use of force majeure and frustration, subject to clauses in the contract, will be termination or suspension of the contract.
In these uncertain times it is important to know where you stand in relation to your contract - hopefully it will allow you to have that beer.