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COVID-19 And Your Contracts – Will Coronavirus Cancel Your Contract?

COVID-19 and your Contracts – will Coronavirus cancel your Contract?

As Coronavirus spreads throughout Australia and the world, measures introduced by governments to slow the rate of infections are affecting “business as usual”. Presently, the Australian Government is considering a range of measures, but has already ordered the cancellation of large events. It is possible that further restrictions, requiring places of business to close for a period of time, will be introduced.

Now is the time to review your commercial contracts, and consider what impact a business shut down could have on your lease or supply and service agreements, by taking these practical steps:

1. Review your contract for a force majeure clause. Force majeure clauses are a common feature of commercial contracts, including leases. Generally, those clauses relieve the parties from some of their contractual obligations, if circumstances contemplated by the clause arise. However, courts interpret these clauses strictly according to their terms, and a term will not be implied at common law if the parties have not expressly included it in their contract. Consider whether you have this clause in your contract, and what events are covered by its terms.

2. Consider whether your contract is now incapable of any further performance. In certain (narrow) circumstances, the doctrine of frustration may apply, entitling a party to terminate the contract if unforeseen events cause a party’s contractual obligations to become radically different from what was intended. However, a temporary shut down is unlikely to amount to frustration of ongoing contracts such as commercial leases, and hardship – even if severe – will not amount to frustration.

3. Check the terms of any business interruption insurance policies you may hold. Commercial leases commonly require tenants to take out and hold such insurance. You should review your policy, to see whether it may respond to a closure.

4. For business owners, consider whether any of the business assistance packages announced by the Queensland and Federal Governments could be available to you.

5. Obtain legal advice on the terms of your particular contract, about what your rights and obligations are in these unusual circumstances.

About Kathleen Anderson

Kathleen Anderson is a Senior Associate in the Dispute Resolution team at Plastiras Lawyers. Kathleen helps SMEs prevent and resolve disputes arising in their day to day businesses. Her expertise includes advising businesses on contract breaches, partnership disagreements, debt disputes and negligence claims.

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