Corporate, COVID-19

Highly anticipated Retail and Other Commercial Leases (COVID-19) Regulation 2020 released

28 April, 2020

The coronavirus has placed unprecedented pressures on businesses with respect to their ability to continue to perform their contractual obligations. This comes as further restrictions are placed on people’s movement to flatten the infection curve.

Many businesses are currently looking for a way to suspend their contractual obligations at least until the virus runs its course.

Apart from having commercial discussions with the other party to the contract, businesses may achieve this by:

  • claiming that the coronavirus is a force majeure event pursuant to the terms of the contract; or
  • claiming that the parties’ ability to perform the contract has been ‘frustrated’ as a result of the coronavirus.

Following on from our firm’s previous article Impact of COVID-19 on your contract: Force Majeure, in this article we outline some practical tips that you can use to help to assess whether a force majeure clause in your existing contracts may cover the coronavirus, and things to look out for in such clauses in future contracts that you or your business are considering entering into.

What is a force majeure clause?

A force majeure clause is a clause often found in commercial contracts that can be invoked to allow a party to suspend performance of its obligations if an unforeseen event external to the parties delays or prevents a party from being able to perform its obligations under the contract. If a force majeure event is particularly lengthy or significant, it may also entitle a party to terminate the contract altogether.

If an unprecedented event like the coronavirus significantly affects your ability to perform your obligations, you would want to know that your force majeure clause is well-drafted to provide you with relief when an emergency like this hits.

Interpretation tips: determining whether the coronavirus is a force majeure event under your contract

What does the contract say?

The starting point in determining if the coronavirus is a force majeure event under your contract is to look at the words used in the applicable force majeure clause.

For example, the clause may define what constitutes a force majeure event, by listing out specific events.  Depending on how the clause is drafted, it may be that only those events listed will allow a party to rely on the force majeure clause.

Alternatively, the clause may define a force majeure event in a general way with reference to examples.  For instance, it may say that a force majeure event constitutes human acts such as war, strikes, machinery breakdowns, and natural disasters such as storms, earthquakes and floods. Where a clause gives examples, the effect is that those examples may ‘guide’ how the broader terminology (in this case “human acts” and “natural disasters”) is to be construed. This may narrow the scope of what such a force majeure clause covers.

Finally, force majeure clauses may be drafted in more general terms with a more wide-ranging application.  For example, the clause may say that neither party will be liable to the other if a party is prevented or delayed from performing its obligations “as a result of unforeseen circumstances beyond the party’s control”, or words to similar effect. The relevant question here may be as simple as – was the unforeseen event beyond a party’s control?

In the context of the coronavirus, if your force majeure clause refers to specific circumstances such as “pandemic”, or to “acts of Government” and “changes in law” (relevant to the recent social distancing measures for example), the coronavirus may fall within the scope of what constitutes a force majeure event under that clause.

The coronavirus may also fall within the scope of a force majeure clause drafted in more general terms, depending on its specific wording, and how the coronavirus impacted the party’s ability to perform its obligations.

Is there a causal link?

Even if a particular event is covered by a force majeure event, there must also be a causal connection between the event and the party being hindered or prevented from performing its contractual obligations.

That is, the occurrence of the event must be the cause of the party being unable to perform its obligations.

This issue may require careful consideration as it is sometimes not entirely clear whether an inability to perform is a direct result of the relevant event.  For example, if the coronavirus has impacted a party’s cash flow which has in turn impacted a party’s ability to perform its obligations (for example its payment obligations under a contract), rather than the coronavirus directly affecting a party’s ability to perform, this may not be sufficient to establish the necessary causal link.  It will of course depend on the specific circumstances.

What to do to invoke a force majeure clause?

A force majeure clause will often require the party seeking to rely on it to provide notice to the other as soon as practicable setting out details of the event and the anticipated delay.

It will also often require the party to continue using all reasonable endeavours to perform is obligations to the extent possible, notwithstanding the occurrence of the force majeure event.

Once the relevant force majeure event has ceased to impact the party, the party must generally resume performance of its obligations as soon as practicable.

It is very important that a party seeking to rely on a force majeure clause strictly follows the requirements set out in the contract, to ensure the party does not expose itself to liability when ceasing to perform its obligations.

What if I don’t have a force majeure clause in my contract?

As discussed in more detail in our firm’s article Impact of COVID-19 on your contract: The Doctrine of Frustration, if a contract does not contain a force majeure clause, or the scope of the clause does not capture the coronavirus, it may be possible to rely on the common law doctrine of ‘frustration’.

This doctrine does however have quite a high bar.

For a party to avail itself of the doctrine of frustration, it will need to show that without the fault of either party, it has become impossible to perform the contract, or that the contract is now radically different from what the parties contemplated when they entered into it, as a result of an event or series of events outside of the parties’ control.

Careful consideration and legal advice will be required to assess whether the specific circumstances may allow a party to rely on the doctrine of frustration, to be discharged from future performance under the contract.

Some force majeure drafting tips

Whilst it may be too late to include ‘viral outbreaks’ in the force majeure clause of your existing contracts, the following are some tips to keep in mind when considering the terms of new contracts that your business may be entering into:

  1. clearly define what will constitute a force majeure event under the contract;
  2. ensure it is clear that a party affected by a force majeure event will not be held liable under the contract to the extent it renders them unable to perform their obligations;
  3. include an obligation on the party relying on the force majeure clause to use reasonable endeavours to continue performing its obligations;
  4. include a provision requiring the party relying on the force majeure clause to notify the other; consider the extent of these notice requirements, including that the notifying party outline the nature of the event and the estimated duration of the delay;
  5. clearly outline what will happen if a force majeure event occurs – for example, it may be preferable to allow a contract to be suspended for a certain period of time, after which the other party may terminate – otherwise, a contract could remain suspended indefinitely.

In drafting a force majeure clause, it is always best to avoid the cookie-cutter approach and to ensure the clause accurately reflects the objectives and intentions of the parties.

If you would like advice on your commercial contracts, including if you wish to rely on a force majeure clause (or need to respond to another party relying on such a clause) in the context of the coronavirus or otherwise, please don’t hesitate to contact us – we would be pleased to help.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
29 August, 2023

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty.  The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes
18 August, 2023
Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.

Published by Justin Pennay
10 August, 2023