The commercial, legal and economic impacts of the COVID-19 (coronavirus) global pandemic are escalating. Contractors in the Australian construction industry are urgently considering the contractual relief they may be entitled to as disruptions become almost a certainty. Extensions of time and delay costs The first consideration for most contractors will be whether they can claim an extension of time and/or delay costs as a result of delays caused by the outbreak (for example, shortages of materials and labour and site shutdowns). The answer will depend on the terms of the relevant contract, and so must be assessed on a case-by-case basis. However, unamended versions of contracts such as GC21 and MW21 will entitle contractors to claim extensions of time as they are entitled to so do when they are or will be delayed in achieving completion by a cause beyond their control. Force majeure Force majeure is a contractual mechanism designed to provide relief to parties affected by unforeseeable events which are beyond their reasonable control. In Australia, whether a party is entitled to force majeure relief hinges on the terms of the relevant contract. However, force majeure clauses in the construction context: May list events such as pandemics or epidemics Usually: Define what constitutes a force majeure event with an exhaustive list of events that are ‘beyond the reasonable control of the affected party’ Require that the affected party must not have caused or contributed to the relevant event and must take reasonable steps to overcome its effects Require that the force majeure event prevents the performance of some or all of the affected party’s contractual obligations Provide that if these pre-conditions are satisfied, the affected party is excused from performing all affected obligations for so long as it is prevented from doing so by the force majeure event. Always require careful consideration of whether the party claiming relief has actually been delayed by the relevant event and has taken reasonable steps to overcome or mitigate such effects. For example, in Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd (2006) 236 ALR 115, Kiefel J held that: “Impractability of performance is not generally recognised as a ground of discharge of a contracting party’s obligations.” The unavailability of, or delay in the supply of, goods and materials from an intended supplier may, therefore, not be sufficient to trigger relief as the contractor will need to demonstrate that it could not fulfil its contractual obligations by sourcing materials elsewhere, even if it is uneconomic or less profitable to do so. Changes in law Change in law clauses in the construction space usually provide that where an unforeseen legal requirement adversely affects the ability of a party to perform its contractual obligations, the affected party is entitled to claim an extension of time and delay costs, and sometimes a variation. Government actions to limit the spread of the COVID-19 virus have escalated dramatically in recent days, such that some of the measures implemented or proposed to be implemented (for example, lockdowns, employee isolation, transport and travel restrictions and closures) could trigger change in law relief. Frustration The doctrine of frustration will apply regardless of whether a contract expressly provides for its application. However: Frustration isn’t easy to establish. For a contract to be frustrated: The nature of its performance must be radically changed since it was agreed so that it has become impossible to perform[1] Merely making performance more difficult or costly is insufficient[2] The only remedy available in the case of frustration is the termination of the contract Whether the doctrine can be invoked depends on the nature of the contract and the obligations in question If a contract is frustrated as a matter of law, losses will usually lie where they fall and this can result in harsh outcomes for all parties, even with the benefit of legislation aimed at ameliorating this harshness. See Frustrated Contracts Act 1978 (NSW), Frustrated Contracts Act 1988 (SA), and Australian Consumer Law and Fair Trading Act 2012 (VIC). Reducing contractors’ risk Given the wide-reaching and financially significant implications of COVID-19 in the construction industry, contractors should try to mitigate impacts where contracts have already been executed: Consider alternative sources of supplies Apportion resources between projects to minimise liability Actively communicate with suppliers and clients to forecast potential delays. Where construction contracts have not been executed, take care to ensure that you are entitled to appropriate relief where you are delayed in or prevented from performing as a result of the COVID-19 pandemic. The above content is commentary rather than legal advice and was prepared on the basis of applicable legislation, government programs and initiatives that were in place as of the date of publication. Given the ongoing evolution of both the COVID-19 pandemic and frequent consequential changes to the various laws and programs within all Australian states and territories, readers should seek legal advice on the current situation as applicable to their specific circumstances before taking any action in relation to the above. [1] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. [2] Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696.
