Coronavirus: A Pandemic’s Legal Implications for Commercial Contracts

Coronavirus Outbreak

Starting from Wuhan, China in December 2019, Coronavirus (COVID -19) has now spread all over the world. The impact is horrendous – both from a well-being perspective and from an economic perspective. We are seeing an impact on airline companies, migration, retail shops, landlords, tenants, our stock markets and effectively all businesses. There are few businesses that we’ve heard of that have not somewhat been affected by the virus.

As a result, TNS Lawyers are also receiving an incredible number of enquiries in respect of terminating contracts, leasing enquiries, frustration of contracts, and whether the coronavirus outbreak is a “force majeure” event. The purpose of this article is to run through some enquiries that we’ve been experiencing at TNS Lawyers and to answer them on a broad scale.

Force Majeure

What is Force Majeure?

Basically, it is a legal word used to deal with unforeseen circumstances or events that occur which are out of the control of the contracting party on a contractual basis. Force majeure provides relief under circumstances where the contract is unable to continue.

Is my situation a Force Majeure Event?

Firstly, in order to seek relief under a Force Majeure Event, it needs to be drafted in the contract. As a general rule, force majeure clauses will not be implied into contracts. it’s always a good start to review the contracts that you’ve signed to see if there is a Force Majeure Event. Sometimes, it will be known as “material adverse change” or an “adverse event.” It is also not restricted to events in Australia. If a contracting party is from another country and they have been affected by the Coronavirus, you might be able to invoke the clause.

What are some examples of Force Majeure Events?

Some examples of force majeure events can be floods, war, acts of terrorism, cyclones, government intervention, epidemics, pandemics, earthquakes, or other acts of God.

So does a Force Majeure Event include the Coronavirus?

This entirely depends upon whether your clause includes words such as “pandemics”, amongst other things, as a force majeure event and in circumstances your contract does not include that term or terms of similar nature, how the clause is drafted. If your force majeure clause does not define or list situations of what force majeure event is to mean, you might be able to construe that definition to include the Coronavirus pandemic. Again, this will be dependent on how the clause is drafted.

What is the relief under Force Majeure Events?

Ordinarily, a party will be relieved or suspended temporarily from its obligations under a contract, but it depends on the wording of the particular clause.

Frustration of Contract

What does frustration of contract mean?

If your contract does not contain a force majeure event, then you might need to consider if your contract has been “frustrated.” In Victoria, frustration of contract is governed by the Australia Consumer Law and Fair Trading Act 2012. Each state operates slightly differently under their legislation, but overall, it aims to provide a fair result in circumstances where a party is unable to fulfil its obligations by a supervening event that has occurred. Similar to force majeure events, this could be an outbreak of war, a natural disaster, etc.

What is the relief under frustration of contract?

If a contract is “frustrated,” then contractual obligations may be relieved from the date of frustration – meaning that the contract is automatically terminated at the point of frustration. It does not mean that the contract is terminated from the beginning, but the point in time where the frustration occurred. Any contractual terms that were not conditional upon further performance of the contract may still remain enforceable.

It will be interesting to see how the courts respond to the coronavirus outbreak and how they will deal with frustration of contracts and force majeure events.

If you need your contracts to be reviewed, contact us today.

TNS Lawyers also wishes for everyone to stay safe during this pandemic and follow the Australia Government Department of Health for more information on how to protect yourself and others from coronavirus.

Disclaimer: This article is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek legal advice before acting in relation to these matters.