COVID-19: Contractual terms you should be aware of

Mark Allen, Director at Aperion law, presented a webinar on identifying and managing legal issues arising from the COVID19 pandemic. Aperion Law, a long-time supporter and member of Fishburners, delivered this presentation as part of its commitment to fellow members and the wider Fishburners community.

The webinar covered critical legal issues by way of an initial presentation from Mark, followed by a detailed Q&A session. This article features one of the many topics that were covered, specifically the contractual terms that a business should be aware of to understand its own exposure and ability to compel others to perform their commitments.

If you are party to a contract, and if you are affected by the current government restrictions or the financial ill health of many companies, the first and most important step is to find the actual contract you have signed (not a draft or incorrect version) – that is the key to ensure you get the correct advice.

In these uncertain times, you may find yourself in a difficult situation – you may not be able to meet a deadline, make a payment, or deliver something you have promised. 

You need to consider what you’ve committed to do and evaluate possible options - can you get out of the contract? Can you extend the time for performance or delivery of the goods, or aim to achieve some other relief?

Can the Force Majeure Clause help you during the COVID-19 pandemic?

This is a term used primarily in shipping and transport contracts, as a typical transport shipping shorthand way of describing events that prevented a ship from getting to its destination on time. This might be war, civil insurrection, detention and so on. It is frequently used in contracts for all sorts of things – supply of services, development of software, etc. It is perhaps not correctly used in every clause, but its scope is usually defined within the contract itself.

What we have found over the last couple of weeks is that many force majeure clauses that do describe the list of things that constitute force majeure, sometimes exclude pandemic and epidemic. Almost invariably, they do refer to government restriction or orders, so maybe in the current climate you can rely on the fact that the government is issuing orders on a daily basis, and this is preventing you from completing a contract.

The clause will explicitly mention how it operates. In most cases of force majeure, the contract provides that the performance can be suspended for a certain period of time. Most clauses usually have a period of 60-90 days.

Watch out for the "Time of Essence" phrase

What this phrase refers to is if you have committed to complete a deliverable by a certain date, you cannot change that date at a later stage. If you miss the deliverable on the due date, you are automatically in breach of the contract. It is a phrase that is often overlooked, so you need to search your document to see if those words are present.

How termination provisions in contracts affect consumers and suppliers

If you have entered into a contract with the government or a large multinational, it is important to note that they usually contain provisions in which they reserve the right to terminate a contract for convenience.

Looking at this from a supplier’s perspective, if you are not being paid for your services, there is no ability for you to suspend provision of services simply because you are not being paid. It has to be explicitly mentioned in the contract.

However, in this situation, sensible discussion with the other party might be appropriate, to ensure whether there is a suspension or termination of the contract.

Leases and personal guarantees

The key thing to check in a commercial lease or contract is if you have given a personal guarantee, or whether if you simply walk away all you will risk losing is your bond. There is still an ability for your landlord to chase you but that may be a risk you have to take, depending on whether you think it is
worthwhile for the landlord to do so.



To find out more about the specific topics that were addressed in the webinar, click on the links below- 

Insolvency Issues: Dealing with Liabilities during COVID-19
READ MORE

COVID-19 and Issues with the Code of Conduct
READ MORE

COVID-19 and Employment Law
READ MORE


Aperion is offering a free 30-minute consultation for those who might want to know - or get a second opinion - about their particular situation in the current environment and want to discuss options available.

If you want to take advantage of this invitation, please contact:

Mark Allen on 0417 251 354 or mark@aperionlaw.com.au

Peter Lightbody on 0419 166 828 or peterl@aperionlaw.com.au

Ashley Cheng on 0408 176 489 or ashley@aperionlaw.com.au