Coronavirus legal alert: Disruptions to Contracts and the METS industry
times from a legal perspective! With the COVID-19 coronavirus outbreak continuing
to unfold across the globe, the METS industry has not been invulnerable to the
effects of the pandemic, as global supply chains and other commercial
agreements are subject to great pressure. Many of our clients in the METS
industry have already approached us regarding some of the potential legal
impacts of the pandemic, with one of the key concerns that industry players have
been raising is the impact on performance of contracts. In today’s brief, we
will discuss some of the key clauses to be aware of, and some practical
solutions on how to deal with disruptions to performance of contracts.
Disruptions to the supply chain
kinds of disruptions that the METS industry will face will not be isolated to
just sick staff. Many Australian companies are already having difficulty
fulfilling business contracts. As one example, this has been seen with
businesses trying to replace computer servers with companies like Intel, whose
plants are partially closed across China meaning they are facing difficulties
meeting orders on time. This has a flow-on effect to their Australian customers
who may not be able to provide their own services if their IT systems aren’t
industry like the METS industry, which is so tech-focused and furthermore often
reliant on China, has the potential to be disproportionately affected by these
kinds of issues in comparison to the average company. Disruptions to the supply
chain are expected to continue for the foreseeable future, with lockdowns,
quarantines, travel bans and a reduction in economic growth expected to combine
to have a significant impact on the METS and mining industries.
Seeking relief under a contract – force
issues like coronavirus arise, what happens in business arrangements will
depend a lot on the private contracts between the parties. Typically, contracts
will provide for “acts of god” under the force majeure clause.
is the time to be reviewing contracts so companies know how force majeure may
impact their rights and obligations under a contract. The following are some of
the key questions to ask when reviewing your contract:
· Does it
recognise the coronavirus as force majeure? The exact wording of force
majeure provisions can vary a lot from contract to contract, sometimes being
more generic in nature (such as “acts of God”) or perhaps giving a detailed
list of possible scenarios. Typical disasters such as fires, floods, terrorist
acts, and similar are typical items, while public health crises and virus
outbreaks are far less common and careful attention will need to be paid to
confirm that they are covered.
· What kind
of notice is required? If a party does wish to seek relief under a force
majeure provision, then it will subsequently need to comply with the notice requirements.
Typically, it will need to provide details to the other side of how it is
affected, what impacts this will have on performance, and the expected length
of potential delays.
· What does
it say about mitigating? Force majeure is not a get out of jail free card. Affected
parties are generally expressly required by the contract to mitigate the impact
of the event on its ability to perform the contract and meet its obligations.
options for relief and termination are available? While these clauses will
vary depending on the exact nature of the contract, generally options for
relief will last only for the time of the actual delay caused by the event. On
the other hand, termination rights will likely be reserved for the most extreme
circumstances where the event is of an ongoing nature (this will also depend on
the nature of the contract).
What are the solutions?
firm is all about achieving commercial legal outcomes for our clients. Firstly,
for any business relationship where there is the potential for impact due to
the coronavirus spread (particularly where you are relying on parts or services
that may come or rely on aspects from abroad) you should already be dusting off
your old contracts and getting your solicitor to look over them so you are
prepared in case you can’t fulfil the contract as it is written, or
alternatively if one of your contractors is unable to meet their own
obligations. Depending on what the contract provides, you may have a range of
options for relief, such as rescinding, delaying, or otherwise modifying the
contract and its performance.
worst-case scenario for most METS companies will be the possibility of
contracts being terminated. In our experience, METS companies will favour trying
to continue with business as normal as much as possible, preferring instead to
manage compliance with contracts where they may be affected. In contracts that
do not provide for force majeure due to a public health crisis, you will likely
need to negotiate the issue with the other party to the contract. We recommend
being proactive and reaching out to the other side early to work through any
existing or expected issues with completing contracts, and that all business
actors adopt an understanding attitude. Our team is “commercially minded” and very
experienced in negotiating these kinds of situations, and have many times been
able to avoid unnecessary litigation for our clients (which will regularly not
only not be able to provide the best commercial solution, but will also likely
be extremely costly and huge distraction). Litigation should be the absolute
last option, not first or second…!
the other hand, if you think you may be forced to breach the contract, it is
important that you mitigate the breach and plan for the impacts this may have
on contractual aspects such as bank guarantees, bonds and damages.
your business is reliant on contractors and suppliers, it is a good idea to
seek information from these parties and encourage open communication so you can
prepare as much as possible for any delays or disruptions.
if your existing contracts haven’t adequately dealt with an event like
coronavirus as part of force majeure, you should mitigate this issue when
negotiating future contracts.
The potential for Coronavirus to cause
significant disruption to METS industry should not be underestimated. It is important that the industry and all
companies move immediately to prepare themselves and ensure they understand how
their business and contracts may be affected. If you are concerned about the
impact of coronavirus on your company and its contractual rights and
obligations in Australia and globally, we encourage you to get in touch with
our experienced team today.
Gomez Group is an Australian law firm and Austmine member with 25 years
experience based in Sydney, with sister offices in Santiago and Bogotá. We specialise
in technology law, cross-border issues and corporations law. Many of
our clients are technology companies, service providers and engineering
companies that focus on the mining, energy and infrastructure markets.
better understand how we can support your management team, please contact
Harris Gomez at firstname.lastname@example.org
Our Sydney office is located at Level 7, 92 Pitt Street, Sydney NSW
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