Coronavirus (COVID-19): Suspending and Terminating Contracts

Terminating contracts during Coronavirus (COVID-19).

The Coronavirus (COVID-19) has placed a temporary holt on a lot of domestic and international trade, leaving business owners in disarray. During this time, many businesses who are not able to meet their performance obligations must understand their rights before terminating or suspending any contracts. It is important to know your rights by speaking to an experienced commercial lawyer. This article will highlight certain areas that you need to keep in mind when making these decisions.

Force Majeure

One of the most important terms to look for in your contract is a force majeure clause. The doctrine of force majeure allows a party to excuse themselves from a contract due to an unexpected and disruptive event. You must ensure there is a force majeure in your contract to rely on this right as the common law does not recognise the doctrine.

If you have a force majeure clause in your contract you may be able to rely on the clause to excuse you from performance of a contract or in some cases terminate the contract. If you have a force majeure clause in your contract it is imperative to ensure the Coronavirus is defined as an event that materially affects the performance of your obligations under the contract and if not specifically referred to in the clause then the events described therein are defined broadly enough to argue it is captured within the definitions.

If you wish to rely on this clause, you must ensure you prove the Coronavirus has significantly delayed and or altered your performance obligations.

Frustration

Frustration of a contract occurs when without fault of either party a contract is unable to be performed due to unforeseen events. As a result of frustration, the original obligations under the contract will change. A contract is automatically terminated when it is found to be frustrated. To rely on frustration, a party will need to prove that a contract is impossible to perform.

The doctrine of frustration is read very narrowly and does not apply to all cases.

Can you terminate or suspend a contract?

Each matter needs to be looked at on a case by case basis. There is no “one rule fits all” unfortunately.

Before you make the decision to suspend or terminate a contract, you need to ensure that you receive advice from a commercial lawyer. Each contract is different and the terms vary. If you decide to suspend or terminate a contract without receiving proper advice, the other party may be able to seek damages against you.

What should you do?

Before you make any decisions to terminate or suspend a contract, understand your rights by seeking legal advice from a commercial lawyer. During this time, our commercial lawyers are taking priority consultations.

Our commercial lawyers can be contacted on 07 3808 7777 or send us an email at business@mclaughlinlawyers.com.au.

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