COVID-19 Response

Dear current and prospective clients,

At Elamine Lawyers we are committed to ensuring the health and safety of our employees and clients. Recent Stage 1, Stage 2 and Stage 3 Australian and State Government Directives have been implemented in order to reduce the risk and ‘flatten the curve’ amidst soaring COVID19 cases worldwide.
 
Despite all Stage 3 Restrictions and now Stage 4 Restrictions, we wish to let you know that all services will be operating as per usual. However, there are some changes that you need to be aware of:
 
  • We are now working from home, unless
  • To the extent necessary to support the functioning of the court, tribunal and dispute services mentioned above for all urgent or priority matters
  • All face-to-face conferences have been suspended until further notice;
  • All meetings have been reverted to Microsoft Teams (part of the Microsoft Office Suite) and Zoom (https://zoom.us). We ask that you download one of the software in order to conduct meetings.
  • All outgoing correspondence will be reduced to e-mail form where possible;
  • All employees are required to report any symptoms such as fever, sore throat, dry cough, anosmia, shortness of breath etc.
  • Our offices have have had eucalyptus vapourisors operating at least two hours per day
  • Keyboards, mouses, files and folders, door handles etc are sprayed with Glen 20 at least twice a day
  • Employees are seated at least 1.5 metres away from each other

Government Directives for Coronavirus COVID19 can be found here.

General Advice for Commercial Landlords and Tenants

We are receiving many calls for advice regarding landlords who are being met with requests for rental relief and equally we are receiving many calls for advice regarding tenants who are unable to meet rental repayments. Although we do sympathise with all parties during this unprecedented time, contractual obligations must still be met. We ask that each tenant make their case for rental relief and if possible, provide evidence from Point of Sale systems and the like to indicate percentages of eat-in and take-away, sales history and the like. This data may assist both parties in coming to terms with a comprised short term arrangement that may ease financial pressures on both parties.

The Federal Government recently announced a set of commercial leasing principles that are to apply during the COVID-19 pandemic and which are included in the National Cabinet Mandatory Code of Conduct (Code).

The Code applies to all commercial tenancies where the tenant is an eligible business for the purpose of the Commonwealth Government’s JobKeeper program and that have an annual turnover of $50 million per annum or less.

The starting point, of course, is JobKeeper eligibility. This is the reason why we refer to the JobKeeper program when we are considering your request for rent relief.

Under the Code, if the lease is an ‘eligible lease’ as you have previously stated, the tenant must report its financials and at the very least provide their monthly turnover and reduction to the corresponding month in the previous year.

Also, the tenant must provide a copy of their Business Activity Statement (BAS) which corresponds with the relevant month. The BAS will be utilised to reconcile the reported monthly turnover and reduction. If the total sales are greater on the BAS compared with the previously supplied profit and loss statement then we are within our rights to adjust the monthly rental payment to make up for this difference.

Whilst it is appreciated that you may be concerned about being required to provide financially sensitive information about your business, and you may have concerns whether or not such information will be kept confidential by the landlord. Accordingly, we have taken guidance on this issue from the Victorian Small Business Commission, which recently published a comprehensive frequently asked questions guideline on the operation of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (FAQ Guidelines).

In particular, the FAQ Guidelines state that a landlord can ask the tenant for the following turnover information:

  • Extracted from an accounting system.
  • Extracted from BAS.
  • Provided to a financial institution.

The FAQ Guidelines also address what turnover information is not appropriate for a landlord to request. The FAQ Guidelines state that a landlord should not:

  • Request future cash flow projections.
  • Request balance sheets, profits and loss or year to date financials.
  • Request the tenant’s bank balance.
  • Require the financial information to be verified, examined, assured, audited or provided by a third party such as an accountant.
  • Require an accountant to provide a letter of comfort or similar on the financial information.

To download our template letters to Landlord, click here.

General Advice for Employers and Employees

Circumstances where employees can be stood-down with pay, without pay or hibernating the business can be found on the FairWork’s dedicated Coronavirus webpage.

You can also check out the JobKeeper Guide by Ian Neil SC Barrister, New South Wales, Queensland, and Western Australian Bars David Chin SC Barrister, New South Wales Bar
Christopher Parkin Barrister, New South Wales and London

Coronavirus and contractual obligations

Whether the COVID-19 crisis meets the test for ‘Force Majeure’ or ‘Frustration’ is still largely untested and uncertain, despite the World Health Organisation (WHO) declaring the virus a global pandemic.

Force majeure

Force majeure is Roman law concept which was designed to provide contractual relief where contracting parties face an unforceable event. Force majeure events are typically natural disasters such as earthquakes, hurricanes, volcanic eruptions directly (or indirectly) affecting a large inhabited area. There is a strong argument to be had that a global pandemic is not dissimilar.

Contracts contain a force majeure clause that is intended to excusing parties to a contract from performing the contractual obligations and avoid liability for not being able to perform their obligations (either wholly or partially). However, these clauses are not available in all contracts.

COVID-19 does not need to be the direct cause of a force majeure event to be relevant. It is entirely possible that a force majeure event may be triggered as a consequence.

For example, it is conceivable that a serious outbreak of COVID-19 may result in airports being closed to certain commercial aircrafts. This may make delivery of essential component parts impossible, thereby allowing a manufacturer to envoke the force majeure clause in a contract.

Chinese Council for The Promotion of International Trade, accredited with China’s Ministry of Commerce had announced on 30 January 2020 that Chinese companies can apply for a ‘force majeure’ certificate in relation to any dispute with foreign trading counterpart. arising from COVID-19.

Whether a contracting party may rely on such a certificate (as proof of a force majeure) would remain dependent on an analysis of the relevant facts and wording of the force majeure clause and also whether the certification is recognised by the counterparty to the contract (and the jurisdiction in which the contract is formed).

Where a contract does not contain a force majeure clause, or where a force majeure clause does not cover the relevant circumstance, parties may wish to consider whether the doctrine of frustration applies.

Frustration

The common law doctrine of frustration may be relied upon to terminate contracts automatically when an event occurs, which is either:

(a) unexpected;

(b) beyond the control of the parties; and

(c) makes performance impossible, or renders the relevant obligations radically different from those contemplated by the parties at the time of contracting

During 2003-4, the SARS epidemic case pf Li Ching Wing v Xuan Yi Xiong [2004] 1 HKLRD 754, related to an epidemic influenza outbreak where a Hong Kong court rejected a tenant’s bid to relief where a tenancy agreement was purportedly frustrated due to the fact that the premises was affected by an isolation order by the Department of Health due to the a novel virus outbreak, which meant that by virtue of the order, it must be uninhabited for a period of at least ten days. The court held found that a ten day period was not sufficient in view of the two-year duration of the lease, and that whilst novel virus outbreak was arguably an unforeseeable event, it did not “significantly change the nature of the outstanding contractual rights or obligations” of the parties in the case.

Unlike force majeure, frustration is a concept recognised by the common law (and in many states in Australia by statute). Frustration operates to bring a contract to an end in circumstances where an interventing event after the formation of the contract has arisen through no act, omisison or fault of the parties, which:

  • makes a contractual obligation impossible to perform; or
  • transforms a contractual obligation into a fundamentally different obligation.

Frustration is typically not easy to establish and has a narrow scope.

Examples of situations where frustration has arisen include:

  • A change in the law rendering performance illegal. For example, where a regulator declares a pre-exiting chemical (existing on a construction site for example) as a new contaminant, making performance as anticipated under the contract (for example removal and re-use at another site), illegal.
  • Physical destruction of the subject matter of the contract.
  • Restraint by injunction.

Codelfa Construction v State Rail Authority of New South Wales is one of the leading cases in Australia related to frustration.

A contract will generally not be frustrated if:

  • it has an operative force majeure clause that can deal with the relevant issue;
  • the impossibility of performance is the fault of either of the parties;
  • performance has only become more onerous or expensive. The intervening event should lead to serious consequences, and not a mere change in circumstances for performance;
  • the change is only temporary or transient. One Hong Kong case arising from the SARS epidemic illustrates this issue. In Li Ching Wing v. Xuan Yi Xiong, a tenant the subject of a 10-day isolation order due to SARS, who was 13 months into a 24-month lease, sought to invoke frustration to discharge a lease to which he was a party. The court rejected the tenant’s argument on the basis that the isolation order was only of a short duration in the context of the entire lease.

Damages

Contrary to a force majeure clause, where frustration does apply, the contract is automatically terminated by operation of law upon the occurrence of the frustrating event. In that event the common law provides that losses lie where they fall. No party can claim damages for non-performance because no party is at fault.  Under the common law (which operates in Tasmania, Queensland, Northern Territory, ACT and Western Australia), where a contract is frustrated all obligations from the point of frustration cease for both sides, including payment obligations.

This may result in harsh economic and financial outcomes and parties may seek recovery in restitution. The other three jurisdictions have legislation that regulates (and ameliorates) how frustration operates:

  • New South Wales (Frustrated Contracts Act 1978),
  • South Australia (Frustrated Contracts Act 1988), and
  • Victoria (Australian Consumer Law and Fair Trading Act 2012).

Each State’s regime is different, however, the legislation attempts in each case to provide a fair result to the parties.

For example, COVID19 may result in frustration if a the contract in issue was a contract that breaches the 10 person indoor rule for non-essential services (such as a theatre show). If a person was subject to a period of enforced isolation sanctioned by a Public Health Order made pursuant to the Public Health and Wellbeing Act 2008 (Vic) and was resultanty unable to perform the at the theatre show, there would be a strong case for arguing frustration.

At the time of publication, COVID19 appears to have tripled from 250,000 infected to almost 750,000 in the space of three weeks and has shown to signs of slowing down. By the end of 2020, experts indicate that millions of lives will be directly affected by the commincable contagion with loss of life in Australia estimated at anywhere from 50,000 to 150,000. Given the insurmountable impact the virus will undoubtly have on many business and peripherals (supply chains and the like), we will see more and more entities seek to rely on frustration of contract arguments.

One should take particular in assessing their risks and opportunties and should operate on a common-sense case by casis basis.