Summary: The complete or partial shutdown of industries in Victoria will impact contractual rights and obligations giving rise to disputes as to which party bears the risk and the monetary impact. We look at how to move forward and avoid getting bogged down in protracted disputes.

Stage 4 COVID-19 business and industry restrictions begin to take effect at 11.59pm on Wednesday 5 August 2020. These restrictions require some businesses to temporarily cease and others to operate in a substantially different manner to business as usual. In both cases, it is expected that the stage 4 restrictions will place a heavy burden on businesses seeking to navigate the restrictions and the flow on effects to third parties.

The legal implications

The stage 4 restrictions are a change of Victorian law. Many contracts contain clauses expressly identifying which party bears the risk of a change of law. Whilst it might be helpful to have a starting point, the application may not be entirely clear and the parties may not agree on the practical implications of the change in law or the quantum of damages or other payments which are then said to become due under the contract.

If there is no clause governing the impact of a change of law, legal rules of contract interpretation will need to be applied to determine who bears the risk and the practical and financial implications.

Moving forward

In considering how to resolve contractual disputes, parties should be aware that court processes will be time consuming and unlikely to result in an outcome conducive to an ongoing relationship between the parties. Currently, we are seeing minor disputes requiring a three day hearing in the Supreme Court of Victoria’s commercial list, taking at least one year to be resolved (not allowing for appeal processes). Determination of larger disputes are being deferred entirely or significantly protracted.

So if a solution cannot be negotiated, the parties should consider submitting the dispute to expert determination or arbitration. Both options provide flexible processes which can be designed to be significantly less costly in terms of time and expense. If the contract already requires all disputes to be resolved by arbitration, the parties should consider whether the form of arbitration required by the contract is the best suited to providing a quick and cost-effective decision. If it is not well suited, because, for example, the process cannot provide a decision within the time required by the parties to facilitate the ongoing relationship, the parties can agree to another form of arbitration.

How we can help?

Cite Legal provides market leading solutions for resolving domestic and cross-border disputes. We can advise on your contractual rights and liabilities and on the most effective dispute resolution process.

Our director, Monique Carroll, can also act as arbitrator or independent expert.