COVID-19 and Excusable Delay/Force Majeure

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As the COVID-19 situation evolves the impact is starting to manifest in different and unexpected ways.  Governments around the world are attempting to slow the spread by restricting gatherings and limiting the movements of people.  It may soon be the reality that some businesses are left unable to move their employees around as required to meet its contractual obligations. 

COVID-19 has been recognised as a ‘public health emergency of international concern’ by the World Health Organisation (WHO) and many governments both internationally and at the state or province level are declaring various levels states of emergency.  These governmental declarations may be triggers for parties to be afforded contractual relief from contracted obligations. 

This relief may take the form of an Excusable Delay or a Force Majeure event (the Delay Event).  It is important to note that many of these relief mechanisms have detailed notice requirements, obligations or consequences and the associated timelines can be quite short. Relief may not be automatic.

If your business’ ability to meet its contractual obligations is being impacted or you have any concern that your business cannot meet its future contractual obligations due to the impact of the COVID-19 pandemic, it is time to revisit the relevant contracts. 

We encourage you to become familiar with the notice requirements or any other requirements for seeking relief under any Excusable Delay or Force Majeure clause.  Some common catches are that the time limit for the notice period begins when you become aware of the issue even if there is not yet any delay, or prior to giving notice certain procedures need to be put in place to minimise impact of the delay.   

Should you consider the above to be relevant to you and your business, we have four key considerations to be front of mind when you are reviewing the relevant contracts:

  1. Notice Period – Identify the Notice Period you have under contract;
  2. Form of the Notice – Identify the prescribed form and content of the notice must be given to the other party.  Pay special attention to the allowable methods of service, some contracts will not allow email service of a delay notice.
  3. Obligations in perfecting the Excusable Delay/Force Majeure right – understand any obligations you may have, such as minimising the loss etc.
  4. Consider the consequences – The contracts may have a time limit in which either party can terminate due to the time the Delay Event continues.  Given the rapidly changing nature of the recommendations associated with the COVID-19 pandemic, one should be wary of any particularly short termination period.  Also consider if the contract has a Termination for Convenience clause, as claiming a delay may cause the other party to consider terminating the contract altogether.

If you have any questions regarding the above or would like to discuss any matter further, please contact our team on (02) 4927 2900.

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