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How to manage your business relationships during COVID-19

During the unprecedented time of COVID-19 there are many unanswered questions. To help you and your business come out the other side of this worldwide pandemic we’ve recruited Gillian Bristow, Legal Practitioner Director of Bristow Legal, to provide you with useful information.

Coronavirus is putting people through tough times nationwide and the transport industry is no exception. As drivers are working hard to move essential supplies across Australia, they’re often faced with unforeseen and costly issues. With a combination of strict isolation requirements, border closures and extra paperwork, not to mention widespread closures of rest stops across the nation, once routine jobs have become more difficult and expensive. On top of all that, the closure of major sites has made fulfilling some contracts seemingly impossible. It’s unsurprising then that many are left wondering what their options are.

Here are some practical ideas for managing your business relationships during the COVID-19 pandemic.  

Communicate

The first option is always to communicate. By discussing any problem issues with your customer or subcontractor, you may be able to vary your existing contract by agreement, whether by changing delivery dates, the way you’ll fulfil your obligations or pricing to better reflect the new situation. Consider what it is necessary now to resolve the issues you’re currently facing and whether you’ll need to seek further variations if the situation changes again. This is particularly important in a rapidly changing business environment.

Agreed variations like this can provide an effective, conflict free resolution that is fair to both parties. However, make sure to keep a record of any changes that are agreed to in case you need to prove this down the line. You’ll also want to read your contract and see whether any clauses specify how any variation should be put in place and whether it must be documented in a certain manner (e.g. signed by the managing director).

Read your contracts

While you’re reading your contract, look out for other important clauses which might help you out in a pinch. Ideally, your contract will have clauses specifically dealing with unforeseen and impossible to prevent events, such as bushfires or other natural disasters. These are known as ‘Force Majeure’ or ‘Act of God’ clauses. If you are fortunate enough to have one of these clauses, it will operate differently contract to contract, making it important to be familiar with what your clause actually says. A contract will often set out a list of events which trigger the clause. With a typical force majeure clause, you’ll be required to notify your customer in writing of the extent of any delay and the reasons, and then you will be required to attempt to complete your responsibilities once the delay-causing event has passed. In the meantime, both sides will be relieved of any responsibility for the delay or losses related to it (and any contractual KPIs). This means no costs or penalties can be passed on to you for expenses/losses incurred on your customer’s end. However, remember that every clause is different, and it is important to make sure that the COVID-19 pandemic actually qualifies as a ‘force majeure’ event under your agreement.

Otherwise, check for clauses that give you rights such as charging extra because of delays or stating that you’re not responsible for late deliveries. In general, you should also look for clauses that give you an ‘out’, like a right to refuse to accept particular jobs or a right to terminate the contract by giving notice. While terminating a contract won’t free you from existing obligations, it may let you end a business relationship that is becoming unprofitable. If you have a right to terminate and you choose to do so, make sure you closely follow the requirements on giving notice that will likely be outlined in your contract.  

If you are at all unsure of your position, it is really important to get legal advice. If you attempt to terminate a contract when you aren’t legally entitled to do so you can leave yourself open to liability for damages that your customer suffers.

Frustration as a last resort

But what if your contract doesn’t have a force majeure clause or any other ‘out’, and you are faced with delays, road closures and other seemingly impossible hurdles because of coronavirus?

You might not be entirely out of luck. While force majeure clauses must be agreed to in advance between the parties, you can still claim a remedy through the general law in some very limited circumstances. This option is called ‘frustration.’ It occurs when a contract becomes impossible to perform through no fault of either party, or, in other words, where what you’d have to do to perform the contract is fundamentally different to what you agreed to do before the crisis started. Unfortunately, it’s a very high bar to prove this, especially where there’s only a temporary delay involved.

What meets this high bar? The frustrating event needs to be unforeseeable and must cause you more than just hardship, expense or inconvenience. For example, in the 1960’s the Suez Canal was unexpectedly closed, forcing ships to reroute thousands of kilometres around the Cape of Good Hope. Nevertheless, this wasn’t enough for ship-owners/charterers to prove their contracts had been frustrated. The deal they had made was still possible in its basic form. Rerouting hadn’t fundamentally changed the nature of the agreement.

So, if you’re just looking at a delay situation, you’ll generally need something more to prove frustration. For example, was it a time sensitive delivery and now that the date has passed, the goods aren’t needed anymore? Has the delivery site shut down for the foreseeable future and there’s no backup option? It all comes back to the circumstances of your agreement fundamentally changing. If you do manage to prove frustration, you generally won’t owe any of the obligations from the point the event of frustration occurred. However, the position is more complicated in some states because of state based legislation.

If you are considering relying on an argument that your contract has been ‘frustrated’, you should get some legal advice.

Be aware of relevant legislation

Despite what your contract says, transport operators ultimately must follow government legislation. This can have a big effect on the options available to you. For example, New South Wales, Victoria and Western Australia all have varying legislation protecting owner-drivers. While a Queensland operator may be able to terminate a contract with an owner-driver on as little notice as the contract requires, in many circumstances a Victorian principal contractor must provide at least three months’ notice. Don’t make the mistake of rushing in and terminating contracts before doing all your due diligence, including seeking legal advice when you’re unsure about your rights.

The road ahead is sure to be full of difficulties but being prepared and aware of your options is key to surviving. Know your contracts, be aware of the law and your rights and keep an open mind and co-operative approach to the issues posed by coronavirus. Challenging times call on all of us to make the best out of a bad situation.

 

 

Gillian has provided advice to the road transport industry for more than 25 years. She regularly presents to industry conferences and seminars, and writes a column for the magazine ‘Power Torque’. Gillian has previously worked with NTI to provide guidance. 

 

Prepared 3 April 2020. Please note that this publication is for information only and is not legal advice. You should consider obtaining advice that is specific to your circumstances and should not rely upon this publication as legal advice.