Whilst hoping that we can all stay well and that COVID-19 will pass quickly, it is now a commercial reality that the COVID-19 pandemic is resulting in uncertainty for contract negotiation, and, disputes arising under existing contracts. Some practical examples are as follows:
- travel or socialisation restrictions prevent a performance proceeding where the organiser has already sold tickets to the event and contracted with performers and other third parties to host the event. They have also agreed to pay royalty fees for branding licensed for the event;
- a company has implemented a ‘work from home’ policy for all staff but has contracts with consultants to ‘work on site’;
- parties have planned to commence a project (e.g. construction) which is currently permitted but they are uncertain as to whether it will be in the future or the future impacts of COVID-19 on the project’s supply chain; or
- a supplier cannot supply the contracted for good or commodity due to quarantine restrictions impacting the supply chain.
Whilst there is no silver bullet here - there are a couple of key points to keep in mind when you are considering the impacts of COVID-19 on your contracts.
- If your contract contains a ‘force majeure’ clause this may cover the COVID-19 impact. However, this will not necessarily be so and it will be a matter of interpreting the clause in light of the facts particular to your contract.
- If your contract does not contain a ‘force majeure’ clause the rights of the parties will be determined according to the remainder of the contractual terms and general law principles. Under Australian law, parties will be relieved from performance of a contract if its performance is ‘frustrated’ by COVID-19. This means that COVID-19 has made performance impossible or substantially different to what was contemplated by the parties. It is usually a difficult hurdle to successfully establish that a contract has become frustrated.
- A failure to perform a contract in circumstances not falling within a force majeure clause, the doctrine of frustration or some other contractual clause, will likely be a breach of contract, giving the other party a right to claim damages.
- Many parties are expected to experience solvency issues as they grapple with the significant changes to their business as a result of COVID-19. This may impact their ability to perform current contracts, continue trading and to meet any award of damages once obtained from a court or tribunal.
- The Federal Court of Australia is currently re-considering how and when it hears cases brought before it and other courts are expected to do the same. It may be that access to court services is significantly disrupted by COVID-19.
What do we recommend?
- Stay calm, strategize and enter into good faith negotiations which openly address the issues. If you are discussing the impacts of COVID-19 in the context of an existing contract, state whether the negotiations are ‘without prejudice’.
- Think ‘outside the square’ – are there opportunities which exist for a different business relationship going forward?
- If the parties require urgent dispute resolution which cannot be obtained from a court (or the parties prefer to avoid a formal court process), agree to binding arbitration or expert determination. These processes allow party driven flexibility as to the form and content of the dispute resolution process.
- Obtain legal advice from a disputes specialist who can readily assist with resolving the dispute and planning for future disruptions.
How can we help?
Cite Legal provides leading solutions for resolving domestic and cross-border contractual disputes and strategies for improving practical and legal enforcement of contracts. For example, the team at Cite Legal can:
- advise as to your contractual rights in the context of COVID-19;
- advise on contingency planning for future contracts;
- act as counsel, arbitrator or independent expert to determine disputes in a commercial and cost effective manner.