Covid-19 versus Contracts – Force Majeure Provisions

What can I do if Covid-19 is preventing me from complying with the terms of a Contract I have entered into?

If you are a party to a commercial contract and you are being prevented from complying with your obligations under the Contract due to the Coronavirus, you may be able to rely on certain provisions within your contract to protect you from a breach of contract situation.

Many commercial contracts contain what is known as “Force Majeure” Provisions (“FM Provisions”). These provisions relate to events which are outside the reasonable control of a party and which prevent a party from fulfilling its obligations under a contract

FM Provisions are express provisions and the Court’s will not generally consider them an implied term of the Contract. Each FM Provision is different however, there are some common elements of all FM Provisions. These include:

If you are unable to fulfil your obligations and your contract contains a suitable FM Provision, then there is usually a requirement for you to give notice to the other party and provide them with evidence that the FM Provision has been invoked. Ordinarily, you are also required to provide additional information in the notice such as, what the likely consequences of the event are likely to be and the duration of time the Contract is likely to be impacted.

Unlike a one off natural disaster event, the impacts of the Coronavirus are not static. We are receiving daily updates from our Government with guidelines and restrictions on how individuals and businesses are to conduct themselves during this dynamic period of time. As a result, it may not be possible to articulate all of the anticipated consequences at any particular point in time. Therefore, where FM Provision notices are issued due to the Coronavirus, they may need to be re-issued as more information about impacts comes to light.

What if your contract does not contain FM Provisions?

All is not lost. In the absence of an express FM Provision, parties may be able to rely on the doctrine of frustration. This doctrine will apply where:

The doctrine of frustration results in the contract automatically coming to an end. The parties to the contract will no longer be bound to perform their future obligations. Of course, this is often not a desired outcome in these types of situations.

Are there any other remedies?

In addition to the above options, there may be other specific contractual provisions which may assist amid the Coronavirus spread. These may include “change of law” provisions which make it impossible to fulfil contractual obligations.

What you should do?

If you are concerned about your position under a Contract, have been served with an FM Provision notice or are looking to end a contract, we can assist in advising you on your rights under the Contract and the validity of any notice. We can also advise you on what steps you ought to be taking to reasonably mitigate the impacts under the contract in question.

We understand that you are all facing unprecedented times and at Bailwick Legal we are here to continue to work with you, for you.

If you would like assistance, please contact our office on (08) 9321 5451 or email Karolina@bailiwicklegal.com.au

 

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