Indeed, a purely verbal contract generally has the same effect as a written contract. However, it makes a lot of difference when it comes to enforcement. COVID-19 does not believe in tears or handshake deals. Same applies in enforcing your contract, especially when you are trying to recover any outstanding payments. A written contract is key!
WHY WRITTEN TERMS AS SO IMPORTANT! – CONSTRUCTIVE?
By making a contract clear in writing, it gives you more certainty and minimises your business risks from the outset. Not all businesses have these and in some cases business efficiency does not always lead itself to having precise written terms. The Benefits of a written contract include but are not limited to:
• serving as a record of what was agreed between the parties;
• reducing the risk of misunderstandings or disputes;
• setting out how a dispute will be resolved;
• setting out how the contract can be varied;
• setting out how the contract can be terminated; and
• giving you a peace of mind.
Although you may not have a formal written contract, exchanges of emails and invoices might provide all these.
It is much safer to have something in writing than trying to prove what someone else’s words mean in a court of law. Sometimes any writing or exchange of emails can constitute a written agreement. SLF Lawyers can determine if you have written and agreed term of trade, which could be enforced.
FORCE MAJEURE CLAUSES
In light of the above, it is, of course, helpful to have a written contract in place. In the turmoil of the current COVID-19 pandemic, it can be a fatal differentiation between businesses bound by contracts with and without a “Force Majeure” clauses.
A Force Majeure clause works to relieve a party from performing its contractual obligations due to an event outside the reasonable control of the affected party. As COVID-19 pandemic is rapidly evolving and more and more Draconian laws have been implemented by governments, including strict social distancing measures, a number of major events have been cancelled or suspended in Australia, including the AFL, NRL and Australian Grand Prix. However, this does not mean that simply because of the spread of COVID-19, a Force Majeure clause will be automatically operative. As a product of freedom of contractual negotiation, Force Majeure clauses will vary from contract to contract. Some Force Majeure events include ’natural disasters’, ‘government action or interference’, ‘national emergencies’, ‘labour shortages’ and ‘acts of war’.
Therefore, it is time to review your contract and consider whether your contractual obligations can be discharged as a result of COVID-19 by means of a Force Majeure clause. It may mean if you are pressured to fulfil a contract that you are not obliged due to force majeure reasons we can assist you.
CONTRACTS WITHOUT FORCE MAJEURE CLAUSES
In Australia, force majeure is not generally recognised in common law. If your contract does not contain an operative force majeure clause, the fallback position for you is to look to the doctrine of frustration.
Whether the contract has been terminated for frustration depends on the contract itself and the impact of the proposed frustrating event on the parties’ ability to perform their obligations. Notably, the standard of proof for the doctrine of frustration is relatively high as oppose to the circumstances contemplated by a force majeure clause.
Please feel free to contact SLF Lawyers if you require legal advice regarding commercial contract, contract disputes and any other commercial disputes, or simply have a discussion on whether the COVID-19 pandemic constitute a Force Majeure event in your contract.
Article written by Henry Lin