Contracts and coronavirus
In simple terms, a contract is an agreement between two or more parties.
A contract will generally be brought to an end (i.e. terminated) when the parties have completed their obligations under the contract, there is a mutual agreement between the parties, when there is a serious breach of the contract’s terms by a party or, occasionally, when a contract becomes frustrated.
With the outbreak of coronavirus, and the government restrictions imposed in Victoria and Australia-wide, it is important to consider how a contract you have entered into may be affected.
Can someone terminate a business contract because of coronavirus?
Whether someone can terminate a contract because of coronavirus will depend on:
- What the terms of the contract are i.e. what the parties agreed to.
- How coronavirus has impacted the contract’s terms.
- How coronavirus has impacted party’s ability to complete their obligations under the contract.
In some contracts, there may be a specific term that a contract is terminated because of an unforeseeable circumstance – this is also known in contract law as a force majeure clause. Generally, a force majeure clause will be found in complex commercial contracts.
In other circumstances, an event may make completion of a contract impossible, or it may make a contract radically different from the original agreement between the parties – this is known in contract law as frustration. In the event that a contract is frustrated, the parties will be released from their future obligations under the contract.
However, just because a contract becomes more difficult to complete, it does not necessarily mean that a contract can be terminated on grounds of frustration. If a party attempts to terminate on a contract without a proper basis, it may be that they are found liable for damages for wrongly terminating the contract – this is known as repudiation.
What about my contract?
The most important thing to consider is if the outbreak of coronavirus will make completion of your contract impossible, or only more difficult to complete? If the latter, you will generally not be able to terminate a contract, but you may have other legal remedies available.
If the outbreak of coronavirus has caused you difficulties with completion or enforcement of a contract, you should not hesitate to contact our commercial and dispute resolution team on (03) 9311 8511 or email at [email protected].