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Quick guide to reviewing contracts impacted by COVID-19
Practical Law ANZ Checklist w-025-0274 (Approx. 6 pages)
Quick guide to reviewing contracts impacted by COVID-19
by Practical Law New Zealand
| Law stated as at 14 Dec 2022 • New Zealand |
Key steps to identify and review contracts impacted by COVID-19
- For information about how companies can conduct an evaluation of their contracts on an ongoing basis, see Practice note, Effective contract management: Analyse contract performance.
- List each party's obligations that have been affected under the contract, including those that:
- cannot be performed; or
- those that can be performed but have been made more difficult by the COVID-19 outbreak.
- List any other relevant clauses that may be triggered by COVID-19, for example:
- material adverse change (also known as material adverse effect);
- termination (see Standard clause, Termination);
- notices (see Standard clause, Notices);
- variation (see Standard clause, Variation); and
- governing law (see Standard clause, Governing law and jurisdiction).
- If the agreement does include a force majeure clause, consider:
- whether COVID-19 events may be included in the definition of a "Force Majeure Event" or are otherwise an act beyond the reasonable control of either party. For example, epidemics, pandemics, communicable disease outbreaks, quarantines, acts of God and acts of government may be listed as Force Majeure Events;
- what notice obligations may apply to activate or trigger the force majeure clause;
- what mitigation obligations a party may have to mitigate damages that may arise as a result of force majeure;
- what obligations will be suspended during force majeure, and the duration of any suspension; and
- whether the clause provides any termination rights that may be exercisable.
For more information on the topic of force majeure, including whether COVID-19 events could be a force majeure, see Practice note, Force majeure: Public health emergencies, pandemics and endemics.For more information about the legal and practical issues that arise when terminating a contract, see Practice note, Termination of contracts. See also Standard documents: - Consider whether the contract is frustrated because the impact of COVID-19 has rendered:
- the contractual obligation incapable of performance (because it would be a radically different thing from that which was undertaken); or
- it impossible to fulfil the contract (for example, as a result of a supervening change in law or illegality). For example, certain government measures taken in response to COVID-19 may make performance illegal.For a list and summary of the effects of the relevant New Zealand legislation and legislative instruments relating to the emergency response to COVID-19, see Checklist, COVID-19: Key New Zealand legislation and legislative instruments.
For more information on the topic of frustration, including consequences of frustration, see Practice note, Frustration of contracts. - If the agreement includes a variation clause, check whether it includes any unilateral variation rights that may be leveraged to improve the contractual position of a party in response to COVID-19.For more information about variation of contracts, see Practice note, Variation of contracts.
- Check whether you still need to perform your obligations under a contract, even though the counterparty may not be required to. The company should have appropriate internal controls to ensure contracts are properly performed by the parties.For more information, see Practice note, Effective contract management.
- If the contract includes a liquidated damages clause, consider whether this would be characterised as a penalty.
- Before deciding whether to escalate any disagreement to a formal dispute, or if the counterparty has escalated the disagreement to a formal dispute, consider whether there are any informal alternative means to help resolve the disagreement or dispute. For example, parties to a supply agreement may hold informal discussions as to the suspension of supply for a period of time due to the COVID-19 outbreak.