Covid-19 & my business
Coronavirus or COVID-19 is a hot topic in the news at the moment. It is likely it will have an impact on your business in the next few months. From a legal perspective, a range of issues arise from those impacts on your business.
We recommend that for all contracts your business enters into until Covid-19 has passed, you carefully consider if and how Covid-19 may impact your business under the contract. You may need special conditions in the contract to deal with those impacts.
Many contracts include a force majeure clause. This clause allows the parties to escape liability to perform their obligations if an act of God or other event outside the control of the parties, occurs. What is covered by a particular force majeure clause depends on the wording of the clause. Force majeure is not a common law or statutory right – to have the right to terminate a contract under force majeure, you must have a force majeure clause in your contract.
If you are entering into new contracts now, we strongly recommend that you consider if you need a force majeure clause, and what it should say. Will the whole contract be susceptible to termination, or only part of it? What payment is necessary if the contract is terminated? Can the contract be resurrected after Covid-19 passes?
Frustration of contract
A contract can be frustrated if it is impossible for the parties to perform their obligations under the contract because of an unforeseeable supervening event. Covid-19 could be such an event for some contracts. If a contract is frustrated, it is void from the time of the supervening event and the parties are released from their future obligations. Past obligations under the contract are not usually avoided.
The Frustrated Contracts Act NSW sets out the rights of parties to apply to the Court for an order that they receive compensation for work done or products supplied under the contract prior to the contract being frustrated.
My supplier has stopped or delayed supplying materials for my business – do I have any legal rights? You need to check your supply contract. Does the supplier have an obligation to provide the materials within a certain time frame? Is there any guarantee as to quantity of products?
Will Covid-19 cause your business any difficulty in meeting your obligations under your contracts with customers? Will you have reduced staff? Will your suppliers be able to provide the products and materials you need to meet your production targets?
Will your financier wish to go ahead with financing the project if Covid-19 has a serious impact?
Does a tenant have to keep paying rent for its business premises if it has to suspend trading temporarily because of Covid-19? The answer will depend on the terms of the lease. Most leases are written so that rent is payable unless a default occurs by the landlord.
What obligations does the manager of a shopping centre have to its tenants in managing Covid-19? Landlords and managers will need to act reasonably considering the safety and wellbeing of members of the public entering the shopping centre, but also keeping in mind the commercial requirements of the tenant businesses.
We encourage our clients to negotiate with your business’s suppliers and customers to get through the Covid-19 challenges as best as is possible. There will be many businesses looking for understanding, patience and flexibility. Before you begin such negotiations, you should consider obtaining a full understanding of your legal rights and obligations.
Duty of care to employees?
Employers have a duty of care to provide a safe workplace for their employees. This will mean creating a hygienically safe workplace as far as is possible. Employers should consider their policies for:
There a range of complex issues for employers and employees arising from Covid-19. We can assist employment law queries.
Duty of care to customers/clients/patients
All businesses have a general duty of care to ensure that their business and their employees do not cause harm to their customers, clients or patients. This would include, as far as is practical in the circumstances, preventing the transmission of Covid-19. The extent of that duty will depend on the type of business and the circumstances of the customers, clients or patients. Certainly all businesses should ensure that their premises are cleaned regularly in a manner consistent with up to date public health advice.
Official health advice at present is that certain categories of person are more vulnerable than others to Covid-19. Responses by businesses will need to take this into account.
The Commonwealth Health Department and each State Health Department have some resources and information sheets online tailored towards particular industries. Whilst these documents are not mostly legally binding on businesses as such (unless the document has legislative or regulatory force) , they hopefully are indicative of what good practice would be in addressing Covid-19. A business will be able to defend a legal claim that it breached its duty of care (i.e. a negligence claim) if it can show it took all reasonable measures necessary in the circumstances including consideration of the up to date public health advice at the relevant time.
Accredited Specialist in Business Law
Special Counsel - Moin Morris Schaefer
(02) 6772 4899