Law firm Bell Gully is advising clients to check their contracts for force majeure clauses as companies at the big end of town start feeling uncertainty from the effects of covid-19.
Litigation head David Friar told BusinessDesk while he hasn’t yet had any clients attempt to cancel contracts, such issues are beginning to be reviewed as coronavirus impacts supply chains.
Friar’s team sent a client alert out on Friday advising businesses to check carefully the requirements of their supply contracts. For many, the relevant clauses will be boilerplate terms and conditions which might apply to coronavirus depending on interpretation, Bell Gully is advising.
In New Zealand, the most impacted sectors to date have been export, tourism and education. The government is expected to roll out further initiatives this afternoon to assist businesses after meeting with the major banks.
Force majeure
Force majeure clauses, usually more commonly associated with weather events, come into play if one side cannot perform its part of the contract due to unexpected events.
The first thing for business, Friar said, is to check that such a provision exists in their contracts.
The lawyer said that, if an event qualifies as a force majeure, then the standard of what can stop one party from fulfilling a contract is very high.
“It is not enough that it has made performance more difficult or expensive. Instead, performance must be legally or physically impossible,” he said.
“The key thing for people to know is that, because there is a high threshold for a clause like this to apply, be careful if you get it wrong, because if you wrongfully repudiate a contract they can claim lost profits against you.”
Friar said any businesses signing new contracts should consider whether they want to have such clauses and whether they specifically list the virus in their contracts.
Disclosure
The other big issue for corporates during the outbreak has been continuous disclosure obligations. Friar said that was a concern for some listed companies which were unsure about whether the information they had required disclosure.
Corporates are also being reminded of their obligations under the Health and Safety at Work Act which theoretically means employers should make sure they do everything practicable to prevent staff from getting it.
Last week, the head of the Prime Minister’s Business Advisory Council Fraser Whineray said many large corporates had already geared up for the possibility of a measles outbreak, which meant they were quite clear on what essential infrastructure could be needed.
