The current COVID-19 pandemic and subsequent government action may have you uncertain about what obligations you owe under existing contracts and what you should expect from other parties. Amidst this uncertainty, it is possible that you have already planned ahead in the form of a ‘force majeure’ clause in your contract, which are those dealing with the consequences of unforeseen events. To gain a better understanding of your obligations it is a good idea to check through your current contractual undertakings and consider:
What is a force majeure clause?
A force majeure clause is a clause in a contract which specifies modifications to the contract, such as giving the right to suspend or terminate the agreement, if a particular event occurs without the fault of either party. Often such a clause will appear as a list of circumstances for which the parties wish to create a contingency plan commonly these clauses may include terms such as “an act of God” or “civil unrest”.
Does the COVID-19 pandemic fall within the scope of that clause?
Whether the COVID-19 situation falls within the scope of the clause depends on your particular contract. In some contracts the clause may provide an exhaustive list of events which will trigger the clause. If this list includes terms such as ‘pandemics’, ‘epidemics’, ‘health events’, ‘quarantine’ or ‘government action’ then the force majeure provisions will most likely apply.
If the clause is more open-ended, it will depend on the wording of the clause as to whether the pandemic will fall within the scope of this clause.
Has your ability to perform the contract been interrupted or prevented by a force majeure event?
There must be a sufficient connection with the pandemic and your inability to perform the contract (or part thereof). For example, it would be difficult to link COVID-19 with a failure to comply with a confidentiality clause but it may be reasonable to link the pandemic to providing services or making payments under your contract. That the performance of an obligation is commercially impracticable may be insufficient for the event to be considered a force majeure event.
Have the relevant parties been given notice?
Some force majeure clauses require that you give notice to the other party if you are seeking to rely on the force majeure clause. If you want to benefit from a force majeure clause, it is important to check for any notice requirements and adhere to these closely.
Are there other avenues for relief available?
If you are experiencing financial hardship in your business or are concerned about a contract please contact David McKewin or Stephanie Forward at Rouse Lawyers on 07 3648 9900.
