covid-19 legal issue...• termination –obtain advice –need to avoid wrongful termination •...
TRANSCRIPT
COVID-19 – Legal issue
20 March 2020
Overriding questions
How will your current actions be seen in a post COVID-19
environment
Ask yourself:
1. What is the action I am doing or not doing?
2. How is this caused by COVID-19?
3. Is it caused by a law, Government recommendation,
staff/product shortage or voluntary response
4. Have I acted reasonably to reduce the impact of COVID-19
5. How can I later prove the impact of COVID-19
Topics
1. Contractual commitments
2. Insolvency
3. Australian competition
4. Employment law
1
Contractual commitments
First questions
Written
contracts?
Bill of lading
Force
majeure Governing
law
Proof of
acceptanceTermination
rights
Time is of
the essence
Customer considerations
Your service provider does not perform as expected – non-
performance, delay, quality
• Is there a written contract and what does it say
• Careful what you say:
• waiver of rights
• false representations
• estoppel
• FM claims
• Exclusivity commitments – rights to change if there is delay
• Is there a no discrimination provision
• Termination – obtain advice – need to avoid wrongful termination
• What solution will termination bring
Supplier considerations
• Assess the impact of COVID-19 on timeframes, service levels
quality
• What rights does the contract give you:
• force majeure
• change of rates
• change of law
• Unfair contract terms
• Ensure no misleading or deceptive statements are made:
• check your website and standard documents
• Document any customer concessions
• Consumer law
Force Majeure
Excludes a contracting party from contractual obligations and
liabilities where performance is prevented by specified events
Key point: It only exists if it is a written contractual term. It is not
implied by Australian law.
FM clause from a BOL
If at any time the Carriage is or is likely to be affected by any hindrance, risk,
danger, delay, difficulty or disadvantage of any kind including but not limited to
labour disruption such as strike and lock-out, war, civil commotion, political unrest,
piracy, act of terrorism and threat thereof and howsoever arising (even though the
circumstances giving rise to such hindrance, risk, danger, delay, difficulty or
disadvantage existed at the time this contract was entered into or when the Goods
were received for the Carriage), then Carrier (whether or not the Carriage is
commenced) may, at its sole discretion and without prior notice to Merchant, ……
• Can exist at the time the contract was entered into
• No notice required to be given
• No duty to mitigate
• One sided
Customs broker T&Cs FM clause
The Company shall not be liable to the Customer for any breach or failure to perform its
obligations under these Trading Conditions or any damage or loss to Goods resulting from
one of the following: … or (x) any other cause arising beyond the reasonable control of the
Company, without the actual fault or privity of the Company and without the actual fault or
privity of the agents or servants of the Company.
(g) If the occurrence of any event contemplated in subclause 21(f) causes a delay of over 5
Business Days in any obligation of the Company, then the provision of Services may be
terminated by notice in writing by either party to the other party. However, all costs, charges
and expenses already incurred by the Company prior to the termination or arising in
connection with the disposal or return of the Goods shall be paid by the Customer.
• Reasonable control requirement
• Cannot be at fault
• Must persist for 5 business days
• Either party can terminate by giving notice
Every FM clause is different
• Is the written contract definitely accepted by the parties
• Do you have to give notice
• Are obligations suspended or is there a right to terminate
• Are the rights given to both parties
• What are the specified events
• Does the event have to be unforeseen
• Is there an obligation to mitigate losses
• Does it exclude inability to pay
But some issues are the same
• FM clauses strictly construed
• Burden of proof on party seeking to use the clause
• Reference to “force majeure” alone may not be enforceable
• Can you overcome at a cost – FM clauses do not generally protect profit
margins
• When did the breach occur – FM cannot cure past non-compliance
• Courts will generally imply an obligation to act reasonably
• Unfair contracts – is the term one sided, is it wider than what is needed
to protect a legitimate interest
FM – practical steps
• Identify the specific requirements of the FM clause
• Give notice and exercise your rights – FM clauses are often not
automatic
• Obtain and keep evidence of the impact of COVID-19
• Take steps to mitigate – not all impacts will be out of your control
• New contracts – Specifically deal with COVID-19 – it is now a
known event
China and force majeure
• Force majeure is part of Chinese law
• exempts a party from liability in full or part
• requires notice and evidence of the FM event
• can entitle termination of the contract
• FM certificates are issued by the China Council for the Promotion
of International Trade
• these certificates do not mean Chinese law apply
• the certificates are only proof of a FM event
• SARS experience – notions of fairness
• Which law applies – look at contract
• Enforcing Australian judgements in China
Frustration
Automatically applies to bring a contract to an end where an intervening
post contract event has occurred without fault of the parties which makes a
contract impossible to perform or transforms a contractual obligation into a
fundamentally different obligation
Must stricter that FM – Performance needs to be impossible of fundamentally
different – not just more difficult or expensive
Will not apply where:
1. there is a FM clause
2. due to the fault of a party (voluntary response to COVID-19)
3. the change is temporary
4. performance is more onerous or expensive
Frustration
• Accrued rights
• Legislation
• Prior case law
• Examples where it will apply:
1. performance is now illegal
2. an essential person is unavailable
3. method of performance is impossible
4. specific source material becomes unavailable
Key – the event must occur post contractual formation – will not help
with new contracts
Renegotiating the contract
Most contracts do not give a party a unilateral right to renegotiate
Some contracts may allow the following:
1. price review clauses
2. termination on material adverse change
3. termination or price change on change in law
Key – Document any renegotiation
Other contractual issues
• Exclusion clauses
• may exclude a type of loss:
• delay
• pure economic loss
• may place a cap on liability for breach
• may limit loss where it is not due to the fault of a party
• Indemnity clauses
• who is liable for extra costs
• freight forwarder contracts often make the shipper/consignee liable
for demurrage, storage and extra third party costs
• unfair contract terms
Steps to take for future business
1. Notify of any likely impact such as delays
2. Place this notification on your website, quote forms and directly
inform customers
3. Check whether any existing public documents are not
misleading
4. Provide guides as to possible extra costs – such as detention
charges, what if goods have to be unloaded and transshipped
5. Take reasonable steps to mitigate losses and extra costs
6. Check what security you have in place or require pre-payment
• contractual rights are useless if the other party cannot pay
Checklists
Customer
❑ Ensure staff welfare
❑ Examine the contract – FM clause,
exclusivity commitments, long term
❑ Take care with any waiver of rights
❑ Can you terminate
❑ Dispute resolution clause
❑ Request evidence of impact of FM
❑ Document the impact of breach
❑ Take steps to mitigate the impact of the
breach
❑ Consider when breach occurred
❑ Is time the essence of the contract – if not,
give notice
❑ Reassess impact of FM
Supplier
❑ Ensure staff welfare
❑ Assess whether you can meet
commitments
❑ Review FM clauses
❑ Document any customer waiver
❑ Allocate risk according to contracts and
customer waiver
❑ Document attempts to mitigate impact of
COVID-19
❑ Retain evidence of impact of COVID-19
❑ Review what representations are made
❑ Check insurance
Long term contracts
The downturn in the economy will mean businesses want to cancel
long terms contracts – leases, advertising, IT, non-essential services
If you cannot perform your obligations:
• exposed to damages equal to the value of the contract
• damages designed to put the innocent party in the position they
would have been in if the contract was performed
• the other party must act reasonably to mitigate their losses
Innocent party – do you want the contract to end – is it better to
continue and claim damages for the breach
Termination
• Termination of a contract can be a very difficult legal issue
• Repudiation
• Delay may not justify termination – is time the essence of the
contract?
• If you take too long to terminate, you may be taken to have
affirmed the contract
• If you wrongfully terminate the contract you can be in breach
• A contract may have a termination clause – seek advice before
exercising this – you may significantly limit your right to damages
Insolvent trading
Insolvent – if a company cannot pay its debts as and when they fall
due
Issues:
Insolvent trading: Directors must not cause a company to incur a
debt while insolvent, or cause a company to become insolvent by
incurring a debt
Safe harbor: Where a debt is incurred in connection with a course of
action that is reasonably likely to lead to a better outcome for the
company than the immediate appointment of an administrator or a
liquidator – employee entitlements and tax reporting must be up to
date
Statutory demands: They will be sent to your registered office – is
anyone checking the mail
Competition law
Agreements with competitors that substantially lessen competition:
• agreement to freeze prices
• agreement to divide markets to create efficiencies
• agreements not to charge extra for out of hours deliveries
Be very careful – unless the conduct is exempted by the ACCC it is
prohibited – you may be judged in a post COVID-19 environment
Price gouging
Exclusive dealing:
• tested by whether it lessens competition
• test will be stricter where there is a shortage of products
Generally you can choose who you do and do not supply
1
Employment law
Standing down employees
• With Pay / without pay
• S. 524 Fair Work Act:
An employer may… stand down an employee during a period in
which employee cannot usefully be employed because of:
(c) A stoppage of work for any cause for which the employer cannot
reasonably be held responsible
Standing down employees
• S. 524(3) – In this situation, employer is not required to pay
employee
• exception – S.524(2) – If enterprise agreement/employment
contract contains a relevant stand down provision
Standing down employees
Options when stand down without wages:
• Access annual/long service leave. If refuse unpaid leave
• Annual leave or long service leave in advance of accruing
(full/half pay)
• Personal leave where satisfies criteria
Standing down employees
• Stand downs can also be partial – e.g. from full time to .4/.6 FTE
• Flexibility is important – limit stand down period so can review
regularly
• When customer demand increases again, can progressively
increase rostered hours
Self Isolation Issues
• Employee on 14 day self-quarantine due to Fed Govt
requirements:
– No general obligation to pay (may be different if entitled to
personal/carer’s leave)
– If the business directs employee to stay home due to OHS concerns
(where no Govt requirements):
» Need to pay wages if employee willing and able to work
» NB: Explore whether employee can usefully work from home for all
working hours
Self Isolation Issues
– School Closures Employee decides to stay home – carer’s leave
(unexpected emergency)
– What do I do if employee reports symptoms before work/at work?
• Requiring employees to advise relevant risks (e.g. employee is
travelling overseas) – you can require this
• Employees travelling for work – delayed overseas due to local/
city lockdown:
– entitled to be paid
OH&S Obligations
• Take steps to reduce the OH&S risks so far as is reasonably
practicable:
– prioritise at risk employees for working from home
– increased cleaning regime
– educate employee re risk control issues:
» hand washing; sneezing (refer to Department of Health Advice)
Questions?
CONTACTSRussell Wiese
T: 03 8602 9231
David Thompson
T: 03 8602 9251