In light of the global outbreak of Coronavirus (COVID-19), many businesses are confronted with questions about the legal and regulatory implications. Our clients in Australia are assessing (as are we – see here What is Allens doing?) how to address the threat posed by COVID-19 to their workforce, customers, suppliers and wider stakeholders. This is, above all, a human and social issue, necessitating some significant changes in the way everyone goes about their daily lives. As efforts are underway to manage the spread across Australia, the impact on businesses and economies is becoming increasingly apparent.
As Australia's COVID-19 infection rate continues to grow, businesses here are responding to a range of challenges. On this page, we’ve pulled together our insights on some of the key issues affecting businesses based in Australia, and possible solutions. Directly below is a summary of the most pressing questions clients are currently asking us.
Contact: Michael Park
Last updated: 16 March 2020
It is important to bear in mind applicable privacy obligations when managing risks in relation to COVID-19. Commonwealth Government agencies and private sector organisations (including companies, trusts, incorporated associated and sole traders), with an annual turnover of $3 million or more will need to comply with their obligations under the Privacy Act 1988 (Cth) in relation to any health information or other personal information collected relating to the COVID-19 outbreak. Most Australian states and territories have privacy laws, or other privacy-related obligations, that apply to government bodies in their state or territory. In addition, there is specific health records legislation in the ACT, New South Wales and Victoria that may apply in some circumstances.
Information about the health or medical status of an identified individual (such as whether an individual has been tested for COVID-19 and the results of that testing) is likely to be regarded as health information, which is a type of sensitive information that is generally the subject of additional protections under applicable privacy laws. Government agencies and organisations should carefully consider whether it is necessary to collect, use and disclose health information about identified individuals in the context of the COVID-19 outbreak. Consent from the individual is generally required for a government agency or organisation to collect health information about an individual, subject to some of the exceptions below.
Other information that government agencies or organisations may wish to collect (such as details of any countries an individual has travelled to recently) would not be regarded as health information. However, it would still be subject to generally applicable privacy obligations relating to the handling of personal information, including to give a collection statement setting out how an individual's information will be used, held and disclosed.
Government agencies and organisations can generally use and disclose personal information for:
- the primary purpose for which that information was collected;
- any purpose to which the individual has consented;
- purposes required or authorised by law; or
- related purposes (or directly related purposes, in the case of sensitive information such as health information) that the individual would reasonably expect.
As circumstances continue to evolve, it is likely that COVID-19 may be viewed as a workplace health and safety issue; or that the use and disclosure of health information and other personal information in connection with the COVID-19 outbreak may become reasonably expected by individuals.
Under the Privacy Act 1988 (Cth), Commonwealth Government agencies or organisations can also use and disclose personal information (including health information) without consent if it is unreasonable or impracticable to obtain the individual's consent to the collection, use or disclosure; and the entity reasonably believes that the collection, use or disclosure is necessary to lessen or prevent a serious threat to the life, health or safety of any individual, or to public health or safety. Depending on the circumstances, this may be a key exception to be relied upon in the context of the COVID-19 outbreak.
The Attorney General or the Prime Minister also has the power to make an emergency declaration, in certain circumstances, to permit the collection, use or disclosure of personal information in ways that would otherwise breach the Privacy Act. This power was used in connection with the recent bushfire crisis, but it remains to be seen whether it will be exercised again in relation to COVID-19.
Other limited exceptions may also apply in some fact-specific circumstances. There is a limited exception for private sector organisations (but not government agencies) that permits the use of disclosure of employee records (including health information about employees) for purposes directly connected with a current or former employment relationship. However, this exception has some limitations, in that only the organisation that is the direct employer of the individual (and not any other entity in a corporate group) can rely on this exception, which does not extend to individual contractors engaged by that organisation.
As the availability of some of these exceptions can be fact-specific, government agencies and organisations should seek specific legal advice about their particular concerns, including in relation to notifying at-risk individuals if an employee or customer is determined to have been exposed to or become infected with COVID-19. For example, it may be necessary to identify the relevant individual/s so that others within an organisation who may have had contact with an infected employee or customer can also be identified for screening purposes.
Government agencies or organisations should ensure that any disclosure of personal information (including health information) about an individual is permitted under one of options discussed above.
Disclosing entities should also consider the extent to which it is necessary to identify any individuals with possible COVID-19 symptoms, including both within and outside the entity. For example, it may be necessary to identify an individual with COVID-19 symptoms in an internal communication to all other employees working on the same floor as that individual (so that co-workers on that floor can identify whether they have had contact with that individual); but it may not be necessary to identify that individual in a company-wide email that is sent to other offices in Australia or internationally. In such a wider communication, it may be sufficient not to identify the individual in question, and instead simply state that an individual on a particular floor in a specific office has developed COVID-19 symptoms and appropriate actions are being taken.
Similar considerations would apply for external communications, including informing potential visitors who may have met with an individual with COVID-19 symptoms, or where an organisation is informed that an external visitor to that organisation has developed COVID-19 symptoms. In such circumstances, keeping comprehensive records of all meeting attendees would be a prudent step. This will ensure that any potential issues can be managed in the future, with an appropriately targeted communication to internal employees and external visitors who may have interacted with an individual who has developed COVID-19 symptoms.
The Office of the Australian Information Commissioner (the OAIC) has recently released guidance on understanding privacy obligations towards staff in light of COVID-19. The OAIC has recommended that Commonwealth Government agencies and private sector employers should aim to limit the collection, use and disclosure of personal information about their employees to what is necessary to limit and manage the COVID-19 outbreak; and take reasonable steps to keep personal information secure, including where employees are working remotely.
Collection, use and disclosure of information
The OAIC recommends that employers should collect as little information as reasonably necessary to limit and manage the COVID-19 outbreak. This includes information needed to identify risks and implement appropriate controls to prevent or manage COVID-19 – eg whether an individual (or a close contact) has been exposed to a diagnosed case of COVID-19 or if they have recently travelled overseas (and to which countries).
Consistent with our comments above, the OAIC's view is that employers may inform staff that a colleague has, or may have, contracted COVID-19 but should only use or disclose personal information as reasonably necessary to limit or manage COVID-19 in the workplace. Whether disclosure is necessary in the circumstances should be informed by the most recent advice from the Department of Health.
Working from home
The Privacy Act 1988 (Cth) does not prevent employees working remotely, but the Australian Privacy Principles will continue to apply. The OAIC suggests that a privacy impact assessment (PIA) may be useful in evaluating and mitigating risks to personal information. The OAIC also notes that Commonwealth Government agencies are required to undertake a PIA where there is a high-privacy-risk project that involves new ways of handling personal information. Other useful tips from the OAIC for protecting personal information when working remotely include:
- keeping up to date with the latest advice from the Australian Cyber Security Centre;
- ensuring continuous compliance with Protective Security Policy Framework requirements (if applicable);
- securing all electronic devices and storing the devices in a safe location when not in use;
- increasing cyber security measures and testing the measures ahead of time;
- ensuring all devices, virtual private networks and firewalls have necessary updates, the most recent security patches and strong passwords;
- using work email accounts for all work-related emails containing personal information;
- implementing multi-factor authentication for remote access systems and resources; and
- accessing and using only trusted networks and cloud services.
Our clients are seeing significant supply chain disruption; the cancellation of conferences, sporting events and international travel; closure of public places; and restrictions on movement. As businesses suffer broadening interruptions to their operations, complex (and often interrelated) questions regarding force majeure, breaches of contract and insurance coverage are emerging. Below are 10 of the most pressing questions clients are asking us and our thoughts on those issues.
There may be an entitlement to relief where your contract contains a force majeure (or equivalent) clause. It is important to consider notice provisions carefully.
You must determine whether the clause codifies the events giving rise to relief. Historically, many contracts included a pandemic head of relief, and that is now very likely to apply to COVID-19. Where the clause does not provide specific relief (and operates as a code) there is unlikely to be an entitlement. We have seen a number of recent claims by parties seeking to shoehorn a COVID-19 argument into a force majeure clause that purports to cover the field and lists, for example, natural disaster, lockout and/or civil unrest. Such claims are unlikely to succeed (see below).
Relief under a clause linked to the impacts of the exercise of governmental powers is likely to become increasingly relevant, as we see various jurisdictions (including at a state and federal level in Australia) take measures to control the spread of the virus.
There is no implied force majeure concept in Australia. However, this concept may be implied into contracts governed by civil law jurisdictions, including China, and you should consider the governing law of your contract and the place(s) of performance.
- Trigger events: You will need to demonstrate a causal nexus between the relevant event and the impact on your business. For a customer, while your demand for certain goods or services may have declined as a result of COVID-19, you will not necessarily be excused from an obligation to purchase minimum quantities of those goods or services under your contract if you are not prevented from complying with the purchasing obligation as a result of the virus. Hardship is unlikely to be relevant (on the buy and sell sides).
- Notice requirements: You may be required to give notice of the relevant event (in some cases, 'immediately') in order to seek relief.
- Known events: It is arguable that a party entering into a contract in late February, when the COVID-19 epidemic was known, will not subsequently be entitled to relief on the declaration of a pandemic.
- Requirement to mitigate: The terms of the contract may require you to show evidence that you have taken all reasonable steps to avoid the event or the impact of its consequences.
Some contracts include a right (often mutual) to terminate if the relevant event occurs for a specified period. There will likely be notice requirements, both when the event occurs and before termination.
There may also be consequences of termination for your business that you will want to consider, including liability for the counterparty's stranded costs, the effect on your commercial relationship with the counterparty, and reputational damage. There is also a risk of wrongful termination (or repudiation), for which the counterparty can claim damages, so you will want to ensure your termination rights are clear.
You may have the following alternative options available to you:
- Reduce the volume of services and/or goods you procure under the contract if your demand has dropped. This may involve revising your forecasts immediately.
- Exercise step in rights while your supplier is unable to deliver the goods and/or services.
- Consider alternative suspension rights under the contract that may be more suitable.
- Negotiate a commercial arrangement with your counterparty that is mutually acceptable in the circumstances.
In limited circumstances, you may seek to rely on the common law doctrine of frustration. This will bring a contract to an end in circumstances where an intervening event has occurred, through no fault of the parties, which makes a contractual obligation impossible to perform or transforms a contractual obligation into a fundamentally different obligation.
The doctrine of frustration has a very narrow scope. Frustration will not arise where there has been mere hardship – even if severe – where the event in question has been foreseen or where the change is only temporary or transient.
Courts have found that frustration has arisen in the following potentially relevant circumstances:
- a fundamental change in the basis of the contract;
- when the contract can no longer go ahead as envisaged;
- when an event occurs that has no immediate impact on the contract, but will foreseeably affect it in the future;
- supervening impossibility through government interference (possibly applicable, particularly if the Australian Government bans large gatherings of people); and
- a change in law rendering performance illegal (not relevant to COVID-19, at present).
Again, repudiation risk is a critical consideration. Damages may well be significant in the context of long-term relational contracts; it will be worthwhile to consider the potential consequences of repudiation, by reference to any limitation clauses (regarding consequential loss and or liability caps).
Reliance on a force majeure clause to obtain relief from performance will often lead to disputes. A particularly fruitful area for disputes relates to a failure to provide timely notification (in many circumstances, timely notification will be a condition precedent to an entitlement). We also commonly see disputes about the claiming parties' knowledge of the relevant events, and relating to the alleged nexus between the event and the impact on performance. For example, a supplier's claim might be contestable where impediments to performance can be reasonably overcome, including by finding alternative subcontractors; or if it fails to mitigate the effects of the event. Clearly, you should also assess whether resisting the supplier's claim will negatively impact upon your ongoing business relationship (and whether that is acceptable).
The doctrine will not apply where the relevant events are addressed in an appropriately drafted force majeure clause (or elsewhere in your contract). There are a number of examples of the courts holding that a claim for frustration must fail. Given the risk of repudiation, it is a high-stakes strategy and one that is likely to create disputes in the current environment. It is our expectation that suppliers in some industries will seek to rely on this doctrine, to obtain leverage to negotiate more onerous terms. In those circumstances, you need to make clear to suppliers that they must satisfy a very high threshold, by demonstrating that the contract is no longer capable of performance (through no default by the purchasers of goods and materials). The onus is on the supplier to establish that it satisfies that threshold, and purchasers ought to seek fulsome evidence and explanations as to how the contract has been said to be frustrated.
This is an option, provided the existing supplier has not been appointed on an exclusive basis. However, bear in mind that if you intend to continue the existing supply arrangement, you may be liable to pay your existing supplier once it becomes able to perform its obligations again. Flexibility should also be built in to any new supply arrangements, to take account of the current circumstances.
Where businesses need to find a new or replacement supplier (whether temporarily or on a longer-term basis), in the current environment they should draft the supply contract in a way that contemplates the commercial risks of COVID-19. The following provisions will be key:
- Priority clauses can be used to protect against the possibility of further shortages. These clauses may require the supplier to distribute its products on a pro rata basis among its customers, or even to prioritise one customer. Without these protections, most suppliers will be motivated to provide available stock to the highest bidder.
- Pandemic or contagion clauses can set out the parties' obligations in the specific event that supply is affected by COVID-19. Using a dedicated clause, rather than resorting to a general force majeure or exceptional event mechanism, will afford businesses greater control and certainty.
- Term and termination clauses should contemplate the broader commercial considerations of the business. If the replacement supplier is providing a temporary supply of goods or services while arrangements with the old supplier remain on foot, the new supply contract should be flexible, potentially containing a short term and termination provisions that allow for a quick exit by the customer.
You should review and understand the terms and conditions of your insurance arrangements, as each policy can differ significantly, depending on its wording.
The types of insurance that are particularly likely to be relevant are business interruption insurance (BII) and contingent business interruption insurance (CBII).
Generally, BII covers loss of income in circumstances where your operations are interrupted as a result of damage to the premises from which your business is conducted; whereas CBII insures against losses incurred because your ability to supply a product or service is interrupted due to an impact on your suppliers. Losses caused by interruptions due to epidemics or pandemics are often excluded in these types of policies but, in some cases, cover may be available. For example, some BII policies extend the concept of damage to include notifiable disease.
Take note of any excesses, the indemnity period and the limits of cover for these kinds of insurance policies. Prompt notice to insurers is also likely to be important.
Various measures have been taken and recommendations issued by public authorities to contain the spread of COVID-19. Indeed, some of these appear to be contradictory. Consequently, employers are having to take their own decisions and make some challenging judgment calls. While, for many, it is business as usual, we have observed a wide range of reactions so far, including requiring staff to work from home, closing offices, requiring specific employees to self-isolate, restricting business travel and recommending that employees reconsider personal travel.
A key control measure to slow the rate of the transmission of COVID-19 appears to be minimising human contact. Accordingly, many employers are cancelling conferences and work events, and restricting travel, opting instead for technology-based solutions to facilitate meetings and work connection.
Employers (who, under work health and safety laws, are persons conducting a business or undertaking (PCBUs)) have a primary duty to ensure, as far as reasonably practicable, the health and safety of their employees and all persons in their workplace. This duty requires employers to take steps to ensure so far as is reasonably practicable:
- their workplaces (which extend beyond their physical offices) are without health and safety risks; and
- they have safe systems of work.
In the current COVID-19 environment, this duty would require that employers at least:
- provide information about health risks posed by contact with the COVID-19;
- provide instruction about ways to minimise those health risks; and
- monitor, assess and take steps to mitigate the risks that COVID-19 poses to health and safety of workers in their workplace.
- staying up to date with current advice, including from:
- state and federal health departments, including: https://www.health.gov.au/news/health-alerts/novel-coronavirus-2019-ncov-health-alert;
- DFAT travel advices: https://www.smartraveller.gov.au/news-and-updates/coronavirus-covid-19;
- the WHO: https://www.who.int/emergencies/diseases/novel-coronavirus-2019;
- sharing information with your employees;
- restricting travel, where necessary;
- providing adequate hygiene facilities and instruction on hygiene practices;
- putting in place self-isolation or quarantine protocols; and
- having a contingency plan for when a worker tests positive for COVID-19, to mitigate the risks to the health of other workers and the risk of transmission in the workplace
Whether or not any employee travels in connection with their employment is within the control of the employer.
In normal circumstances, an employer can direct an employee to travel as part of their employment arrangements. However, where there are travel advisories recommending not to travel, or where there are government prohibitions in place, such a direction may not be reasonable and an employee may have a valid basis for refusing to comply with the direction.
In addition, an employer needs to consider their duty to the employee when considering directing travel to places – or, indeed, particular meetings or conferences – where this exposes the employee to unreasonable risk.
An employer cannot direct an employee to not travel in their personal time.
However, where that travel presents a risk to other employees, it would be open for the employer to require the employee to self-isolate on their return. Evaluating whether this is necessary should be undertaken in accordance with an appropriate risk assessment, including by reference to any government travel restrictions.
The employee may be able to self-isolate and continue working from home. However, where this self-isolation impedes the employee's ability to perform their duties, the employee may need to use their accrued leave. The employer should not direct the employee to use their personal leave or annual leave but, rather, inform them that they may access this form of leave if they do not want to be on unpaid leave.
Where the direction is based on a more general policy of 'social isolation' adopted by the employer, in the absence of a government direction to do so, an employee may be able to refuse.
However, the nature of COVID-19 means it is quite likely an employer will need to close a workplace, or part of a workplace, for a period of time, to assess the risk of infection, and clean the workplace to reduce the risk of further infections from residual virus within it. In such circumstances, the employer can direct employees to work from home, or from another location.
It would also be open for the employer to make this type of direction in relation to specific employees where it is necessary for an employee to self-isolate because they are at risk of having COVID‑19, as a result of travel, or exposure to others who are infected, or because they are otherwise unwell.
Employers should consider their work from home policies to evaluate whether they are appropriate for the current circumstances.
Where the refusal is based on a general concern about being infected, an employee can't refuse to come to work. However, if there is an unreasonable risk to the employee's health or safety, an employee may have valid bases for refusing. This might include where co-workers are known to be infected, or have travelled to at-risk destinations without quarantine or self-isolation.
Where an employee is unable to attend work because they:
- have COVID-19 or are otherwise quarantined;
- must self-isolate due to a government isolation requirement;
- have to care for others who are subject to quarantine or isolation requirements; or
- need to care for children who are unable to attend school as a result of school closures
these are matters within the employee's responsibility.
However, the employer should allow the employee to work from home if they are well enough to do so and it is possible for them to carry out their duties at home.
Otherwise, the employer should inform the employee that they may access their personal leave or annual leave, or otherwise can take a period of unpaid leave.
This may be different where an employee has contracted COVID-19 as a result of exposure at the workplace.
If an employer must shut down its operations for a period of time and its employees cannot be usefully employed, the employer could rely on the 'stand down' provisions contained in the Fair Work Act 2009 (Cth) to stand down its employees.
An employer can direct its employees to take annual leave (or other forms of leave) if an applicable modern award or enterprise agreement permits such a direction to be made (eg in circumstances where an employee has excess annual leave).
Any such direction must be reasonable and, in each case, specific requirements will apply, including providing the employee with advance notice.
If an employer is not permitted to direct their employees to take a period of leave, the employer can invite their employees to access their accrued leave, or, alternatively, take a period of leave without pay.
These are matters within the employee's responsibility.
However, the employer should allow the employee to work from home if they are well enough to do so and it is possible for them to carry out their duties at home.
Otherwise, the employer should inform the employee that they may access their personal leave or annual leave, or otherwise can take a period of unpaid leave.
This may be different where an employee has contracted COVID-19 as a result of exposure at the workplace.
Whether or not an employee who contracts COVID-19 has a workplace injury will depend on the circumstances of their infection. In many cases, it will be difficult to determine whether any infection occurred in the workplace; at least until there has been some tracking and contact tracing.
Where there is a risk that the infection is a workplace injury, an employer needs to consider its obligations to investigate and report these infections. The employee may also have particular rights that arise where the infection is a workplace injury (eg in relation to workers compensation).
COVID-19 is creating a multitude of issues for companies in relation to corporate governance. The challenges include continuous disclosure obligations (for listed entities), shareholder and director meetings, financial reporting obligations, and impacts on M&A transactions. Entities should carefully consider the steps that they need to take to mitigate these issues and seek to ensure compliance and business continuity.
The COVID-19 outbreak may result in information coming to light that must be disclosed to the ASX in accordance with a listed entity's continuous disclosure obligations under the ASX Listing Rules.
There are a number of foreseeable circumstances in which COVID-19, or matters relating to COVID-19, may give rise to market-sensitive information concerning a listed entity, such as in relation to earnings forecasts, employees, material contracts and financing arrangements; the supply of, and demand for, its products or services; as well as external considerations, such as government intervention. Such matters should be considered as part of a proper and ongoing assessment of a listed entity's disclosure obligations.
See Allens' Insight on listed entities' continuous disclosure obligations for more information.
COVID-19 is having a material impact on a number of entities and proving to be a fast-evolving challenge to business continuity. As listed entities navigate the issues and challenges at this time, they should, as always, diligently act to mitigate the risks of insider trading, which may be enhanced in this dynamic and uncertain environment.
In the context of COVID-19, this may involve reinforcing trading policies; considering closed and black-out periods for trading; controlling dissemination of information internally; and ensuring relevant information is publicly announced at the appropriate time, in accordance with the listed entity's disclosure obligations mentioned above.
This is especially important for at-risk businesses that are materially impacted by COVID-19. They may wish to amend trading policies so that they are more proscriptive: eg extending obligations to a wider group of personnel or to increase restrictions that key management personnel are already subject to.
The COVID-19 outbreak may have an impact on a number of provisions in commercial transaction agreements, including:
- conditions precedent;
- the occurrence of material adverse changes;
- force majeure and termination rights;
- repetition of warranties at completion; and
- restrictions on physical meetings.
Depending on the nature and stage of the transaction, proactive steps can be taken to mitigate the impact of COVID-19 by carefully managing the transaction timetable; the due diligence process; in-person meetings with counterparties, advisors and third parties; signings, completions and implementation steps. Parties should seek legal advice on the possibility of engaging regulators in the event of the need for any particular relief.
COVID-19 may have an effect on a company's external audit process, which may be interrupted by travel bans and other restrictions (particularly for on-site components of an audit). This could have a knock-on impact on a company's financial reporting obligations. It will be important to consider timing and ease of access (in accordance with the necessary security protocols) to relevant information and personnel, for external auditors to undertake the external audit process via alternate means, if required.
Boards will need to ensure they are receiving the necessary information to make informed decisions in a timely manner, while ensuring that they do not constrict management's crisis management abilities. This may involve the chairperson, or a member of the risk committee, and CEO working together to disseminate information between management and the board, and the board providing the necessary support to management at this challenging time.
Companies should consider the currency and sufficiency of their insurance coverage, including public liability, building and contents, travel, business interruption and D&O insurance cover. The terms and conditions of such insurance policies should also be considered carefully for potential exclusions (often in relation to viruses and pandemics). The currency and ambit of D&O insurance cover, in particular, should be considered, given an increased risk of directors' and officers' decisions being challenged in the aftermath of COVID-19.
While there is no one-size-fits-all approach, mitigation of business-interruption strategies from a corporate governance perspective that boards should consider implementing include:
- appropriate delegations of authority;
- effective electronic communication channels and the possibility of holding board meetings electronically;
- appropriate contingency plans in the event of unexpected vacancies on the board or board committees; and
- remote working arrangements for all personnel.
The Federal Government advised that non-essential gatherings should be cancelled, in an effort to limit the rapid spread of COVID-19. This presents an obvious challenge for a number of Australian companies that are required to hold shareholders' meetings in the coming weeks and months.
In response to the issue, ASIC has provided guidance to the market on holding annual general meetings for entities with a December 31 financial year. It has also been announced that the Federal Treasurer will be provided with temporary 6-month powers that can be used to alleviate otherwise mandatory requirements for companies under the Corporations Act 2001 (Cth) which ASIC might not ordinarily have the ability to modify. We have reviewed these developments and set out the relevant considerations for companies seeking to delay holding a meeting until conditions improve, and look at what options are available where they have no choice but to call and hold a meeting.
For companies with a December 31 financial year end, ASIC has provided guidance that it will take no-action against those companies where:
- their AGM is postponed up to the end of July;
- their AGM is held as a 'virtual meeting' (discussed further below); and
- supplementary notices are issued to shareholders up to two business days before the scheduled date of the meeting which provide further instructions for online participation.
It is encouraging to see ASIC acknowledging the difficulties faced by Australian companies at this time, and that they intend to be facilitative in working with them through this period. However, ASIC's 'no-action' position comes with a significant health warning: ASIC's position does not stop other parties taking their own action or the Court making a finding otherwise. ASIC may also amend or revoke their position.
ASIC's position does not apply to all entities who may need to hold a meeting during this period, or alleviate the underlying legal position on what the law and a company's constitution permits regarding the use of technology. We consider these issues further below.
A public company with more than one member must hold an annual general meeting within five months after the end of its financial year and at least once in each calendar year.1 A public company that is yet to call its AGM may consider delaying the timing of the meeting, so long as the new proposed date satisfies these conditions.
Alternatively, a public company may apply to ASIC to extend the period within which it must hold an AGM.2 The application must be lodged before the last date on which the AGM must otherwise be held. ASIC will consider each application on its merits, and has indicated in its regulatory guidance that it will usually be inclined to grant an extension of time if:
- the inability of a company to hold its AGM on time is due to factors beyond its control; or
- ASIC is persuaded that it is in the interests of the shareholders to do so.
ASIC's assessment is guided by judicial principles that the obligation to hold an AGM 'should be relaxed only for good cause shown'.3 In the current environment, we expect ASIC will consider each application on a case-by-case basis, having regard to matters including timing, travel restrictions, the recommendations being made by other government agencies, and the availability of technology (as described below). However, given the uncertainty surrounding the likely duration of the COVID-19 outbreak, delaying the meeting may not be the best option.
ASIC's guidance notes that ASIC doesn't have the power to modify the relevant provisions of the Corporations Act. Therefore, ASICisn't in a position to negate the requirement to hold a meeting or provide class order relief to avoid needing to apply for an exemption on a case-by-case basis. However, ASIC has adopted a two month period of 'no objection' for certain entities that delay their AGMs.
Importantly, while ASIC's guidance is helpful, it is not a complete solution. It doesn't apply to all companies, nor alleviate the risk that other parties could still take action. Further, the no-action position could be amended or withdrawn in the future.
1. Corporations Act 2001 (Cth), section 250N.
2. Corporations Act 2001 (Cth), s250P.
3. Chief Justice Bowen in Re Gem Explorations and Minerals Ltd  2 NSWLR 584.
There is no provision under the Corporations Act 2001 (Cth) or common law power that would allow a public company to postpone or cancel a meeting once it has been convened. Any postponement requires an express provision in the company's constitution.
If a company's constitution specifically permits the postponement or cancellation of a meeting after it has been convened but before it is held, further notification will need to be provided to all persons who received notice of the meeting. Companies should consider any specific notice requirements set out in their constitutions.
ASIC's guidance considers that a company may need to amend a notice which has been despatched to shareholders, and they have indicated they will not object to supplementary notices being issued to shareholders up to two business days prior to the meeting to include instructions for online participation.
Importantly, while ASIC's guidance is helpful, it is not a complete solution. This no-objection only extends to a limited class of companies, and it only relates to one type of amendment (to include instructions for online participation). It does not, for instance, cover an amendment that is required if a company needs to change the venue of its AGM after the notice is sent.
Options for adjourning the meeting
In circumstances where postponement is desirable or essential – eg authorities recommend against public gatherings – but not available under the company's constitution, the chair could seek to adjourn the meeting.
It is common for a company's constitution to give the chair broad discretion to determine to do so of their own volition, without having to put a motion to the floor. In such circumstances, the chair may determine that the only business to be conducted at the meeting is to determine that it be adjourned.
Alternatively, under the common law, the power of the decision to adjourn lies with the meeting itself and it would be incumbent on the members present to resolve to adjourn it.
In our view, if the chair intends to exercise that discretion, the company should publish that intention before the meeting, in order to limit the number of attendees. This could be achieved by making an announcement on the ASX and providing information on the company's website.
However, companies should be aware that there is an ongoing debate whether holding and adjourning a meeting so that the main business of the meeting is conducted at a date after the expiry of the statutory deadline is effective to comply with section 250N of the Corporations Act .
Options for the use of technology
If a meeting has to be convened – eg because no relief is available to delay it, or because there are pressing corporate or commercial matters requiring a decision – technology may assist a company in dispensing with the business of the meeting without requiring large numbers of members to gather together. Indeed, ASIC has said it is supportive of using technology in response to this issue.
The Corporations Act contemplates that a general meeting must be held at a physical location.1 However, the use of technology presents a number of opportunities to hold a meeting while giving members, management, directors, and even the chair, the opportunity to participate online or in another location,2 which may be particularly attractive when public gatherings are discouraged or travel is restricted.
- webcast - it is common practice for listed entities to provide a live webcast of general meetings. This gives members, and other observers, the ability to passively follow the proceedings, and possibly submit questions in real time, but does not allow them to be counted in a quorum or vote during the meeting.
- hybrid meetings - companies may provide members with the ability to attend the meeting via an online platform using their own unique shareholder identifier, allowing them to be present, vote and ask questions. It does not alleviate the need for a physical place to be specified, but it does offer flexibility.
Hybrid meetings are relatively uncommon in Australia, but are typically considered to be permissible where the directors or the chair are given broad discretion under the constitution to determine the manner in which meetings of the company may be conducted and the technology that may be used. We have worked with a number of clients to achieve the holding of hybrid meetings. ASIC consider that hybrid meetings are permitted under Corporations Act. Further, the recent inclusion of hybrid meetings in Fourth Edition of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations suggests that conducting a meeting in this way is viewed favourably by the Council as a means to facilitate broader participation.
Given the interpretation of the legislation requires at least one physical location for company meetings, 'virtual meetings' – where the meeting is entirely online – are not permissible under Australian law for the time being, though they are common in other jurisdictions, such as the US. ASIC has noted there is 'some doubt' in this area, but nonetheless suggested that it will not object to companies with a 31 December financial year end from holding its AGM in this way.
In preparing for a meeting, companies should be aware that the technology to be used must be specified in the notice of meeting.3 If it is intended that members are encouraged to utilise the technology on offer, it is recommended that these details be displayed prominently in the notice of meeting and other public communications regarding the meeting. In addition, if physical attendance is to be discouraged, companies should consider enabling and promoting direct voting, if their constitution allows it.
ASIC has indicated it will not object where a company with a December 31 financial year end issues a supplementary notice to specify instructions for online participation at the AGM where that notice:
- is provided electronically to a shareholder who has provided details for electronic communication;
- is displayed on the company's website; and
- is accompanied by a market announcement to the relevant securities exchange.
1. Corporations Act, ss 249L(1), 249S and 1322(3A).
2. Corporations Act 2001, s249S.
3. Corporations Act, s249L(1)(a).
There is no requirement that the directors of a company must attend the company's meeting. So long as the quorum requirements are satisfied,1 the meeting can proceed. However, it is understandable that companies may also seek to use the meeting as an opportunity for shareholders to meet and hear from their directors, and so companies may have a preference that all efforts are made for the directors to attend.
Where travel restrictions or the advice of government agencies presents difficulties in bringing the directors together with shareholders in one physical place, companies should consider how technology could be used to allow directors to participate from satellite locations – eg via an audiovisual link, and can do so knowing ASIC will support the use of technology in response to the disruption caused by COVID-19.
1. Corporations Act, se249T, which is a replaceable rule; and so, the company's constitution may provide otherwise.
- Know the latest date that the meeting must held.
- Engage early with ASIC if an extension of time is required, or to address other compliance anomalies. There are circumstances in which a 'no action' letter could provide practical comfort.
- Understand what is permitted under the company's constitution:
- Can meetings be postponed or cancelled?
- Does the chair have discretion to adjourn the meeting?
- Are there broad powers given to the directors or the chair to determine the manner in which general meetings may be conducted?'
- Is direct voting permitted?
- Discuss with your registry provider the different technologies that may be available, noting ASIC is supportive of this approach in the current circumstances.
- Prominently disclose and encourage the use of the technologies available at the meeting.
ASIC has indicated that its position is under continuous review, and so as protective measures to limit the spread of COVID-19 continue to be announced by the authorities, ASIC may continue to develop its position.
ASIC's current position only applies to companies with a 31 December financial year end, and not to entities with a different financial reporting cycle or to meetings which may need to be held in the period, such as scheme meetings. Given government and health authorities are advising that COVID-19 may cause disruption for many months to come, ASIC may have cause to revisit both the scope and period of its no-objection as the fallout from COVID-19 continues.
Temporary powers have been announced for the Federal Treasurer to provide additional relief for companies required to hold shareholder meetings during this period. The corresponding bill was put before Federal Parliament on 23 March 2020. Once in effect, the broad nature of these powers could enable ASIC to overcome some of the limitations they have noted in their guidance, giving them scope to modify the Corporations Act in ways not ordinarily permissible and provide further relief to companies.
Ultimately, when the Treasurer's temporary powers fall away, ASIC's acknowledgment of the limitations under the existing regime, and its support for the use of technology which is not clearly enshrined in the legislation, demonstrates a need for future regulatory reform. Once the response to COVID-19 stabilises and the Federal Government is in a position to conduct a consultation on the issue, there will be good reason to consider adopting a clearer approach for companies to use technology to hold shareholder meetings.
The COVID-19 outbreak brings with it a complex interplay of federal and state governmental powers to control and manage the declared pandemic. In general, the Federal Government's role in a public health emergency is to provide policy leadership, coordination and funding, as well as implementing measures within its constitutional powers, such as border control and quarantine. The primary responsibility for matters relating to healthcare and emergency management lies with the states and territories. These roles are now playing out in the context of the COVID-19 pandemic.
The Federal Government and state and territory governments each have very broad, but not unlimited, powers in relation to a public health crisis.
Under the Biosecurity Act 2015 (Cth), the Federal Health Minister (as well as officers appointed under the Biosecurity Act) has powers regarding a disease that is designated as a 'listed human disease', directed at curtailing the spread and severity of that disease. COVID-19 is currently designated by the Department of Health as a 'listed human disease'.
Additionally, following the declaration by the Governor-General on 18 March 2020 of a 'human biosecurity emergency', the Federal Health Minister now has very broad emergency powers under the Biosecurity Act.
State and territory governments
The states and territories each have separate legislative powers that enable them to implement relevant biosecurity arrangements in their respective jurisdictions, and have a range of public health and emergency response powers under existing legislation. These include powers of detention and forced quarantine.
Where existing powers are insufficient, the state and territory governments have already shown a willingness to pass legislation to sustain and support the Federal Government's approach and, in some cases, go further. For example, in Queensland, the Public Health and Other Legislation (Public Health Emergency) Amendment Bill 2020 (Qld) was passed on 19 March 2020 to expand the range of emergency powers available to officers responding to the COVID-19 emergency, including the power to order certain businesses to stay open.
In NSW, and under Federal Law, further steps have also been taken to ensure the executive branch of government can respond proactively to the legal challenges presented by the COVID-19 outbreak. This includes, for example, the grant of power to the NSW executive to temporarily amend certain statutes (such as the Powers of Attorney Act 2003 (NSW), the Conveyancing Act 1919 (NSW), and the Oaths Act 1900 (NSW)) in certain circumstances.
The Australian governments, both at federal and state and territory level, have already introduced a broad range of measures to combat the spread of COVID-19, including restrictions on social interaction and business, and tighter border controls. However, government policy in this area is evolving at a rapid pace, with further and more invasive measures likely to be adopted as the crisis unfolds.
Restrictions on social interaction
The Australian governments have been progressively implementing tighter restrictions on social interaction in order to combat the spread of COVID-19. These measures are being announced by the Prime Minister at regular press conferences, and subsequently implemented under relevant state and territory legislation. It is likely that further restrictions will continue to be imposed.
Implementation of border controls
Both the Federal Government and state and territory governments have also introduced a range of measures aimed at tightening border controls in response to the COVID-19 outbreak.
Key measures that have been introduced by the Federal Government pursuant to the Biosecurity Act include, among others, a restriction on Australian citizens and permanent residents from travelling overseas (subject to certain exemptions).
We have also seen the introduction of domestic border control restrictions at state and territory level. For example, in the Northern Territory, non-essential travellers arriving at the border must self-quarantine for 14 days unless an exemption applies. Several states have also adopted similar restrictions.
It is likely these measures will have a significant impact on business operations, particularly in respect of any employees who would normally be required to travel overseas or interstate for business purposes. Businesses should monitor this space to ensure they, and their employees, comply with the relevant restrictions and seek appropriate exemptions where possible.
State and territory governments have also been progressively implementing tighter restrictions upon business in their respective jurisdictions.
This includes a range of orders directing that certain businesses be shut down to prevent the spread of the disease. Whilst a significant number of businesses are already affected by these orders, as tighter restrictions are imposed, the number of businesses which will be required to shut down will increase. Businesses should monitor this space to ensure they are compliant with the relevant restrictions, which continue to evolve as the situation unfolds.
Requiring businesses to operate
Another key risk faced by businesses is the possibility they may be compelled to operate by government, either under the law of their relevant state or territory or, potentially, under federal law.
The states and territories have broad powers as a result of emergency declarations under public health and general emergency legislation, which may be engaged to require businesses to operate. It is conceivable such orders might be made in respect of services essential to the maintenance of public health (eg medical services, grocery suppliers).
The Queensland legislative assembly has also passed amendments which give emergency officers in Queensland the power under the Public Health Act 2005 (Qld) to require certain businesses to stay open. While that power has not yet been exercised and the types of businesses which might be required to keep their doors open have not been specified, the Queensland Chief Health Officer has recommended that food and grocery businesses open for trade from 7am on days that those shops are permitted to trade, to enable people to obtain essential groceries.
Ensuring community access to essential supplies
Various state and territory governments have begun to amend planning and retail trading laws to ensure that members of the community continue to have access to important supplies during the COVID-19 outbreak. This includes, for example, the Environmental Planning and Assessment (COVID-19 Development – Extended Operation) Order 2020 (NSW), which allows for retail premises such as supermarkets, pharmacies and corner stores to operate 24 hours per day. Similarly, in Queensland, the Chief Health Officer has issued a notice under the Public Health Act 2005 (QLD), the effect of which is to permit businesses used predominately for the sale of food or groceries to open from 7am on a day the business is permitted to trade.
A business which stands to be affected by an order of government, such as one affecting its ability to trade, may be able to seek an exemption in certain circumstances.
Whilst in general, there is no specific legislative framework setting out the process by which such exemptions can be sought, several of the orders which have been imposed to date specifically contemplate the grant of written exemptions.
Businesses should consider whether they are or are likely to be affected by an order of government and take proactive steps to seek out appropriate exemptions if needed.
Although very broad, the powers of the Federal Government, and state and territory governments, are not unlimited.
Under the Biosecurity Act, for example, the power of the Federal Health Minister to determine emergency requirements during a human biosecurity emergency is limited to measures which they consider necessary to 'prevent or control' the disease, or to implement certain recommendations of the World Health Organization. This power may also only be exercised during a human biosecurity emergency period, although the duration of that period may be extended by the Governor-General.
Similar considerations apply under state or territory based legislation.
There are also a number of principles at general law, which may serve in certain circumstances, to constrain the exercise of government power.
Under the Biosecurity Act, the penalties for contravening determinations made regarding a listed human disease include financial penalties, and contravention of a control order by an individual may also involve imprisonment (of up to 12 months).
Penalties for contravening determinations made under the special powers of the Federal Health Minister during a human biosecurity emergency declaration period (including, for example, emergency restrictions on overseas travel) include imprisonment for individuals (of up to five years), and financial penalties.
There are also separate penalties for non-compliance with other relevant federal, state and territory legislation.
The Federal Government continues to progressively announce a series of economic stimulus packages in response to the expected economic impact of COVID-19. These initiatives include, among other things, support for businesses and business investment, as well as cash flow assistance for small and medium-sized businesses. Further information about the Federal Government's economic response is available here.
State and territory governments will also deliver economic stimulus, including concessions and support for businesses. Information is available from the New South Wales, Victorian, Queensland, South Australian, Western Australian, Australian Capital Territory, Tasmanian and Northern Territory governments.
With COVID-19 creating challenges for Australia's commercial landlords, we examine their rights, obligations and liabilities under existing leases. Landlords are facing a range of issues including reduced office occupancy, business continuity concerns in certain sectors and trying to navigate how to respond most appropriately to their tenants' requests. Similarly, commercial tenants are also facing a different set of challenges. Here, we explore their rights, obligations and liabilities under existing leases and examine whether insurance is likely to offer some protection in these circumstances. The Prime Minister announced on 20 March 2020 that State and Territory governments would be working on model rules designed to support tenants experiencing hardship due to coronavirus. The WA State government together with NSW has been tasked with leading the development of new model rules focussed on bringing relief to tenants experiencing hardship. There is no information as to what the model rules may look like at this time but they could include rent abatement.
If a landlord elects to close all or part of the premises, tenants may be able to claim against the landlord for breach of the covenant for quiet enjoyment; this could include a claim for loss of income. Some tenants might be impacted more than others, particularly if there is only a partial closure. Depending on the wording of the lease, the landlord may be entitled to close the premises in cases of emergency or restrict access to common areas; this may preclude a claim for breach of quiet enjoyment. If a landlord is forced to close the premises due to a government order, depending on the provisions of the lease, complying with this order may not breach the quiet enjoyment covenant. Usually, leases will include a provision requiring both parties to comply with all relevant laws, meaning that tenants would also be obligated to adhere to any government ban and vacate the premises as required.
Frustration brings a contract to an end where, through no fault of either party, an intervening, post-contractual event has occurred which makes performance of the contract impossible or radically different. Whether frustration has occurred will depend on the terms of the lease and circumstances of the case. While there may be an argument that a government ban on occupation of, or trading from, the premises could frustrate the lease agreement, frustration has a narrow scope and is difficult to establish. Case law indicates that a temporary change, such as the short-term closure of rented premises, would ordinarily not be enough to frustrate a lease. It is likely the lease will continue during any period of forced closure.
As mentioned above, due to the very limited application of frustration to leases, tenants will continue to be bound to pay rent under the lease even if they are unable to use the premises during a period of closure. Whether they are (strictly) entitled to a rent abatement or other concession will depend on the exact wording of the lease. Given the highly unusual and rapidly evolving circumstances of the COVID-19 outbreak, landlords may wish to consider all options, including potentially reaching a commercial arrangement on payment of rent.
If the lease includes an obligation on the tenant to keep the premises open or to actively trade from the premises, a tenant's decision to voluntarily close its premises due to the spread of COVID-19 may (depending on the relevant retail legislation if the shop is a retail shop, the wording of the clause and any carve out) breach this obligation. However, Australian courts have stated that specific performance and injunctions compelling a lessee to trade will only be ordered in exceptional circumstances. This means the landlord would be unlikely to obtain a court order to force the tenant to re-open (although they may have a damages claim). In the event of a government-mandated closure, it is unlikely the landlord would be able to enforce an obligation on the tenant to keep the premises open or to actively trade from the premises. The tenant's obligation to comply with all relevant laws would likely trump the keep-open obligation.
Most service charges provide for the recovery of cleaning costs. Although deep or more frequent cleaning costs are likely to be over and above those of typical cleaning, they would still be recoverable. Further, an obligation on the landlord to manage the building in a professional manner will usually allow a landlord to recover these costs.
Usually, it will be for the tenant to consider any threat to the health and safety of its employees. However, landlords who are employers will also have duties of care to their staff and others (including visitors) to the extent that they exercise control over parts of premises (eg common parts). See our issues in the workplace section for more.
On 24 March 2020, the Prime Minister announced that food courts in shopping centres will be closed nation-wide. No time limit was given to this closure. Your lease will likely contain a clause that requires you, and the tenant, to comply with all laws and requirements of authorities from time to time that relate to or affect the premises. If you are the landlord of premises with a food court, you and, importantly, your tenant, will need to comply with this order. We do not consider that the order from the Government will entitle the tenant to rent abatement for the period of the closure, nor give rise to a claim by the tenant for compensation under the retail legislation. In addition, a temporary closure of this nature will likely not result in frustration of the lease. However, it is possible that an extended closure might result in frustration of the leases. You should also note that such a closure will likely not result in you, as the landlord, breaching the lease by failing to allow your tenants the benefit of quiet enjoyment, or by failing to operate the centre.
You should also be aware that this is most likely not the last of the Federal Government's announcements in relation to shopping centres. The Prime Minister indicated that landlord and tenant issues will be considered in the National Cabinet meeting on 25 March 2020.
Retail landlord issues
The Retail Legislation in all jurisdictions of Australia include provisions requiring compensation to be paid to tenants including situations around business disturbance. While the various provisions have a common theme there are some important differences, particularly around exceptions for emergency situations.
The Retail Legislation
In NSW, s34 of the Retail Leases Act 1994 (NSW) provides that a landlord must pay reasonable compensation for any loss or damage suffered by a tenant if the landlord:
- inhibits access to the shop in any substantial manner; or
- takes any action that would inhibit or alter, to a substantial extent, the flow of customers to the shop; or
- unreasonably takes any action (considering recognised shopping centre management practices) that causes significant disruption or has a significant adverse effect on, trading in the shop; or
- fails to take all reasonable steps to prevent or put a stop to anything that causes significant disruption of, or which has a significant adverse effect on, trading in the shop and that is attributable to causes within the landlord’s control.
Note that the section specifically refers to actions taken by the landlord. This is consistent across all jurisdictions.
In WA, in addition to the above, the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) specifically provides that any provision in a lease which requires a tenant to open a retail shop at specified hours or times is void. Accordingly, where a tenant wishes to close for any reason in WA (not just as a result of Covid-19) a landlord cannot insist that the tenant continue to trade.
Exception for Emergency
There is an exception for an emergency situation in NSW, Qld, Vic, SA, the ACT and the NT (but not WA or Tas), if the action taken by the landlord was a reasonable response to an emergency situation or to comply with a requirement of a relevant Authority or an Act.
What might be considered an 'emergency situation' is not defined in the Retail Legislation but there are arguments that a global pandemic could be classified as an emergency situation.
Certainly it is clear that where a shopping centre is required by a public authority to close the exception would apply.
Where a landlord chooses to the whole or part of a shopping centre is a little more problematic and would require consideration of the situation at the time the decision is to be made as the Covid-19 situation is changing very quickly.
What to do now
Landlords should follow and monitor all public health announcements and carefully consider all aspects before making any decision to close any part or the whole of a shopping centre. Landlords should weigh up the prospect of the infection of customers, tenants and staff in the Centre against the business disruption.
The statutory powers of the Federal Government, as well as the State and Territory Governments, will be broad in relation to the COVID-19 outbreak. These powers will include controlling access to large places of gathering (which could include shopping centres) and other statutory evacuation orders and/or ongoing restriction of movement orders. As tenants, you should be aware of the possibility of forced closures and/or openings expected to impact centres and your premises.
Your lease will likely contain a clause that requires you, as the tenant, to comply with all laws and requirements of authorities from time to time that relate to, or affect the premises. In the event that the landlord's premises are the subject of a statutory evacuation order and/or an ongoing restriction of movement order, you (and the landlord) are obliged to comply with that order.
Should a relevant authority issue such an order in respect of your landlord's centre, it is our view that the order, and the subsequent temporary closure of the centre would not:
- result in the landlord breaching the lease by failing to allow the tenant the benefit of quiet enjoyment;
- result in the landlord breaching the lease by failing to operate the centre and to provide essential services;
- result in the tenant breaching the lease by failing to continue to trade;
- entitle the tenant to rent abatement for the period of the closure;
- give rise to a claim by the tenant for compensation under the retail legislation (as complying with such a statutory order would likely fall within the relevant emergency carve out clause in your state's relevant retail legislation); or
- result in the frustration of the lease.
Accordingly, by complying with a statutory order of closure or evacuation, neither party to the lease could be considered in breach of its respective obligations.
As you will be aware, on 24 March 2020, the Prime Minister announced that food courts in shopping centres will be closed nation-wide. We consider that the above will apply in relation to such an order.
You should also be aware that this is most likely not the last of the Federal Government's announcements in relation to shopping centres. The Prime Minister indicated that landlord and tenant issues will be considered in the National Cabinet meeting on 25 March 2020.
A landlord may voluntarily decide to close all or part of a centre in response to the risk of COVID-19 spreading, without the centre being subject to a statutory order. This may occur because the landlord is mindful of the spread, or is aware of a high number of infected persons in a particular tenancy, or in the centre generally.
The landlord's action might be in breach of the covenant of quiet enjoyment. It will be a question of fact and degree.
If you are party to a retail lease, your relevant state's retail legislation will likely provide that you will be compensated for interference caused by your landlord. Interference includes, for example, substantially inhibiting your access to the premises. This may, however, be subject to some exceptions.
You should seek advice on the particular rent abatement clause in your lease. Your lease may contain a damage and destruction clause. It may provide for the lessee to receive a rent abatement if the centre or the premises are damaged or destroyed so that the premises cannot be used or are inaccessible. We do not think that this clause would apply in the various scenarios so far contemplated. Even if a centre was the source of a COVID-19 outbreak, neither the centre nor the premises can be considered damaged or destroyed.
If you simply cease trading because of a fear of the COVID-19, it is our view that you would be in breach of your relevant trading obligations under the lease. Of course, if your lease is a retail shop lease it would be subject to any provisions in the relevant Retail Legislation to the contrary including any trading obligations.
In circumstances where your landlord continues to comply with its duties, for example, regularly cleaning the common areas and servicing facilities, would make it difficult for a tenant (if any) to argue that the contraction of the virus by staff members or members of the public known to have frequented the centre, or the risk of the contraction of the virus, excuses the tenant from complying with its trading obligations under the lease.
If you did notify the landlord of the contraction of the virus by one or more of its staff members and your consequential decision to cease trading, it would be a commercial/public relations matter for the landlord as to whether it wishes to enforce your trading obligations.
Please also keep in mind that as an employer, you have a primary duty to ensure, as far as reasonably practicable, the health and safety of your employees and all persons in your workplace. See our issues in the workplace section for more.
There is no common law doctrine of force majeure. It is instead the subject of a contractual agreement between the parties and comes down to matters of interpretation. The ability to rely upon the doctrine of force majeure will depend upon whether your particular lease has a relevant force majeure clause. Such clauses are however, rarely included in standard commercial leases.
It is a high hurdle for an aggrieved party to demonstrate that a contract has been frustrated. Frustration brings a contract to an end in circumstances where an intervening, post-contractual event has occurred, through no fault of any party, by which performance of the contract has become impossible, or radically changed. Temporary change such as a short term closure of premises would ordinarily not amount to frustration.
We appreciate that at the time a statutory order is issued, it may not be known when the centre can be re-opened. We would expect it would only be a matter of days or weeks. In these circumstances, we do not consider this will result in frustration of the lease. While it seems unlikely that a centre would be closed for an extended period of time, it is possible that an extended closure might result in the frustration of the leases. This would need to be considered further.
Where a statutory order prohibits trading from a leased premises, it is our view that it would not be unconscionable conduct for a landlord to seek to recover rent from you for a period of time in which you have been unable to trade (we consider this to be the case in relation to both retail legislation, and the Australian Consumer Law).
We say this because, while it may be unfair for you to have to pay rent when you are prevented by the statutory order from earning revenue, the landlord is also subject to that order and would likely be ready to perform its part of the bargain. Requiring rent to be paid is the landlord's contractual right, and it is difficult to see what the alleged loss would be, considering you as the tenant were already obliged to pay rent by the terms of the lease.
Be aware of the other side. It could be asserted that it was unconscionable conduct for a tenant to refuse to pay the landlord any rent, not because of any wrongful conduct of the landlord, but because a government order has prevented it from trading.
We expect that coverage under existing arrangements will be called into question. In particular, we expect that disputes will arise around whether a pandemic is an insurable event, or whether a loss period is subject to a blackout while the event occurred. You will need to consider whether your particular insurance policy covers losses suffered during a disease outbreak. Be aware that it is common for policies to exclude losses caused directly or indirectly by a disease outbreak. However, your insurance policy may provide for business interruption coverage, which protects businesses against losses incurred as a result of disruptions to their operations. These policies, however, typically require direct physical loss of, or damage to, insured property to trigger coverage. You should review your insurance policy carefully.
On 22 March 2020 the Federal Government announced temporary relief measures to support businesses through COVID-19. Parliament has since rapidly passed the Coronavirus Economic Response Package Omnibus Bill 2020, reflecting the relief measures proposed.
A description of the relief measures as they relate to insolvency law and practice is covered in our Q&As below. In essence, the measures:
- provide directors with temporary relief from insolvent trading liability (but this new COVID-19 'safe harbour' is not a complete answer to those issues);
- increase the thresholds for commencing winding up and bankruptcy proceedings; and
- provide the Treasurer with broad powers to relieve companies of their obligations under the Corporations Act 2001 (Cth) to deal with unforeseen COVID-19 circumstances.
The changes to existing laws are temporary, and at this stage, will apply for six months.
As of the 23 March 2020, the Commonwealth Government has introduced a new insolvent trading 'safe harbour' comprising a six-month moratorium on insolvent trading liability in respect of debts incurred "in the ordinary course of the company's business" (the COVID Safe Harbour).
The COVID Safe Harbour will provide useful immediate relief for companies and their directors, particularly those who need time to assess the company's position before developing a turnaround plan or pursuing an insolvency administration if that becomes necessary.
However, most distressed businesses will still need to work quickly to prepare a detailed survival and turnaround plan that will encompass some or all of the well-established techniques used by insolvency professionals. They will also need to monitor the implementation of the turnaround plan and ensure that it is updated and revisited as the COVID-19 crisis evolves. In these circumstances, it would make sense for businesses to prepare a plan which meets many of the requirements of the existing 2017 Safe Harbour provisions.
The current minimum threshold for creditors to issue a statutory demand on a company will be increased from $2,000 to $20,000 for the next six months. Helpfully, a company will also have six months to respond to a statutory demand, a significant increase from the current 21 day timeframe. This development will ensure that companies have the breathing space they need to deal with their financial issues without the immediate threat and distraction of winding up proceedings being commenced by aggressive creditors.
The Treasurer will be given a temporary instrument-making power to amend provisions of the Corporations Act, to provide relief from, or modify, obligations under the Act. The power is intended to allow the Treasurer the flexibility to deal quickly with unforeseen circumstances arising from COVID-19, without the need for legislation with its attendant delay. The instrument-making power will apply for six months, and any instrument made under this power will apply for six months from the date it is made.
The minimum debt to initiate bankruptcy proceedings against an individual will temporarily be increased from $5,000 to $20,000. The time to respond to a bankruptcy notice will be increased from 21 days to six months.
Last updated: 26 March 2020
Ensuring compliance with environmental obligations is becoming ever more challenging in the face of escalating social distancing and shutdown requirements. Licence conditions and statutory clean-up notices often require regular on-the-ground testing, lab analysis and time-based reporting that may be hindered or delayed over the coming months, posing compliance risks for businesses. Approvals for urgent works and changes to waste streams or discharges may be difficult to obtain where fast-track approval pathways are unavailable and while regulator resources are stretched.
So far, regulator responses to COVID-19 and the willingness of regulators to take a pragmatic, risk-based approach to enforcement of environmental obligations have varied, with some regulators making clear statements that continued compliance is expected, while others foreshadow a more relaxed approach.
In this context, it is critical to understand the options available to support continued compliance, particularly in circumstances where many environmental offences are strict liability.
GENERALLY SPEAKING, NO
Planning and environmental laws and approval conditions are typically framed as absolute compliance requirements linked to quantitative limits, targets or timeframes. These may include deadlines for reporting requirements, maximum allowable emissions to air or water, or obligations to cease or modify operations where environmental outcomes are not met. Associated offence provisions in legislation for failing to comply with these requirements (eg breach of conditions, or pollution of land or water) tend to be strict liability offences, with a business exposed to enforcement action for non-compliance where a condition is breached, an unauthorised discharge occurs or environmental harm is caused.
Unless the relevant legislation contains an applicable exemption, or one is granted by the regulator, the COVID-19 pandemic and associated interruptions to business operations are not, of themselves, justifications to cease or defer compliance with environmental requirements. If a business causes environmental harm or breaches an approval condition, it may be exposed to regulatory action notwithstanding the circumstances that led to the breach.
Increasingly, environmental regimes across Australia are moving towards harm prevention models that require businesses to take all reasonably practicable steps to minimise risks of harm to human health and the environment. The question of what steps are 'reasonably practicable' for a business to take during a time of significant business disruption should be front of mind for businesses. The anticipated decrease in available resources and restrictions on site access during COVID-19 might impede your ability to take the steps usually available to mitigate environmental impacts. In contrast to strict liability-type offences, businesses subject to these types of duties will need to carefully consider, and document, how they plan to minimise environmental and human health impacts now, and as their operations continue to evolve over the coming months.
As discussed below, paying close attention to the guidance being issued by regulators will be key to assessing compliance risks for your business during the COVID-19 outbreak. It is promising that some regulators are signalling plans to relax enforcement activity, in recognition of the significant difficulties businesses may have meeting their environmental obligations and approval requirements over the coming months.
Finally, actions to maintain compliance with environmental requirements should not be taken at the expense of workforce health and safety. The duty of care to workers is paramount, and businesses cannot put their workers at risk even to meet other legal obligations. Duties of employers are discussed further in the 'Issues in the Workplace' section of this COVID-19 update.
Regulators responsible for overseeing compliance with environmental, planning and resources regimes are beginning to issue guidance on their approach to administration, approvals and enforcement during the COVID-19 pandemic. So far, we are seeing a spectrum of approaches, ranging from suggestions that compliance requirements may be relaxed, through to clear statements that ongoing compliance is expected. There are three broad approaches emerging:
- Some regulators (eg the NSW, Victorian and Tasmanian EPAs) have made it clear that compliance with licence conditions will still be expected.
- Some regulators (eg NSW Department of Planning, Industry and Environment, the NSW Resources Regulator and WorkSafe Tasmania) have indicated that a flexible and pragmatic approach will be taken to enforcement and compliance action.
- Some regulators (eg the Western Australian, South Australian, Queensland and Northern Territory EPAs, and the federal Department of Agriculture, Water and Environment) have not yet taken a firm position.
Some regulators have also encouraged businesses to self-report any actual or anticipated failures to comply with the terms of their environmental or planning approvals at an early stage. A number of state environmental regulators have also urged businesses to put in place business continuity plans to ensure, as far as possible, that they meet their environmental obligations.
We expect regulators will continue to update their advice as the impact of COVID-19 on key industries keeps evolving. It will be important for businesses to check regularly for updates on the latest advice from regulators concerning their approach to COVID-19.
Where it will be difficult to comply with existing requirements under licences or approvals as a result of COVID-19, one option is to seek a variation to conditions. COVID-19 may also require a ramp-up in production for some businesses, with associated increases in emissions that require variations to existing approvals or secondary consents / separate approvals.
In most cases, the timeframes for the grant of new licences and approvals or variations will not be short enough to avoid a significant period of non-compliance. However, some states' statutory regimes do provide fast-tracked pathways for new approvals for 'emergency works', and streamlined variations processes for urgent changes. For example:
- Queensland's Department of Environment and Science can grant a temporary emissions licence to permit the temporary relaxation or modification of conditions of an environmental authority. While this power has not previously been employed in the context of a health emergency, the Department has issued these licences in response to weather emergencies such as unanticipated extreme flooding.
- The EPAs in Victoria, South Australia and Tasmania can issue emergency authorisations in place of standard approvals (including for the discharge or storage of waste) in specified circumstances. Businesses are encouraged to contact the EPA to discuss these approvals as early as possible, and they will be assessed on a case-by-case basis.
Some states also have powers to suspend regulatory requirements or grant exemptions. For example:
- The NSW EPA can grant exemptions to provisions of the Protection of the Environment Operations Act 1997 (NSW) or the regulations in the case of an emergency.
- In WA, the Department of Water and Environmental Regulation can grant exemptions to emissions limits during a temporary emergency.
- The NT EPA allows proponents to enter into 'compliance plans' with the EPA. These provide for staged implementation of improvements to operations where a proponent is unable to comply with regulations or an environmental protection objective under the Waste Management and Pollution Control Act 1998 (NT).
Where there are no existing statutory powers that enable relaxation of environmental or planning requirements, legislative amendments will be required for states wanting to provide some relief to businesses. For example, over the past week the NSW Government has passed emergency provisions to relax delivery hours restrictions for supermarkets; to allow supermarkets, and certain other food and 'domestic goods' retailers, to trade at any time over the Easter and Anzac Day public holidays; and for certain essential types of developments, such as COVID-19 clinics, to be carried out without any form of planning approval.
Businesses with complex operations and potential environmental impacts are used to anticipating and responding to regulatory changes imposed by multiple regulators at state, territory and federal level. Usually, there is a relatively long lead time between reforms being mooted and implemented, giving businesses time to digest, plan for and adapt to reforms in advance. It is unclear whether reforms will proceed as planned during COVID-19, and what regulator attitudes will be to enforcing compliance with new laws among the other disruptions being experienced by businesses.
We can expect reform work in its early stages (eg inquiries and public consultation) to be deferred over the coming months. Industry groups are already contacting governments, requesting regulatory relief and delays to reforms that could impact their sector. However, businesses should be aware that reforms that have already been legislated are usually subject to commencement deadlines in amending statutes, which cannot be shifted without further legislative amendments passed by Parliament.
For example, significant reforms to Victoria's environmental protection regime are set to commence from July 2020, and no later than December 2020. The EPA has been devoting significant resources to preparing regulations and policy guidance to support commencement as soon as possible from July. However, the Environment Protection Amendment Act 2018 (Vic) specifically provides that the laws will otherwise commence from 1 December 2020. While the EPA has not commented specifically on this issue in the context of COVID-19, the significant changes to working environments and regulator priorities anticipated as a result of COVID-19 might be a trigger for long-stop dates to be relied on for these types of reforms to commence.
COVID-19 is presenting new daily challenges, including reducing site-based workforces and forcing businesses to focus on business-critical activities only. With resources diverted and site access restricted, we expect managing regulatory compliance to pose a further challenge for our clients. We suggest taking the below steps now to stay on top of your obligations.
- Audit your business's compliance obligations – what are your key approval conditions? Do you have any upcoming reporting deadlines?
- Identify specific compliance obligations that require external consultants / auditors / laboratory analysis to facilitate compliance. Reach out to those contacts now, to identify anticipated interruptions or delays in response times.
- Consider if compliance can be achieved another way: eg remote monitoring using equipment, rather than attendance on site by your team.
- Consider whether it is wise to reach out to key regulators for a discussion about your business-critical activities and anticipated challenges.
- Incorporate compliance work into your workforce planning. Can key staff / resources be reallocated to focus on higher-risk obligations or those linked to your business-critical activities?
If, having done the above, there is still a risk that you might not be able to comply with approval requirements or environmental laws in the coming months, organisations might look to:
- identify (and document) what reasonable steps you consider can or cannot be implemented to mitigate any harm that may occur as a result of not being able to achieve compliance; and
- consider whether it is appropriate to discuss this with the regulator.
The NSW EPA has specifically called for businesses to notify it if they anticipate any significant risk to their ability to comply with their licence. This suggests that the EPA is willing to take a flexible approach to compliance where businesses are proactive in identifying and self-reporting potential non-compliances. In our experience, self-reporting is likely to positively influence the exercise of the regulator's discretion whether to take regulatory action in response to a non-compliance. It also creates an opportunity to discuss potential exemptions or variations to obligations, where the regulator has power to do this.
A number of industry associations have written to regulators, calling for a flexible approach to compliance during the COVID-19 crisis. For example, the National Waste and Recycling Industry Council has urged state and local governments to be more flexible on certain facility licence conditions, so that social distancing to protect staff can be maintained and collection-time curfews can be lifted.
We are also here to provide support if you are facing potential compliance issues, and would be happy to assist you to write to regulators, advocating for a pragmatic approach to enforcement; to review your compliance and/or regulator engagement strategies; or provide advice on your specific statutory and licence obligations, and any avenues to have these varied, if necessary.
Last updated: 26 March 2020
Like all industries, the superannuation industry is facing some immense challenges in light of the rapidly developing COVID-19 pandemic. Key among those challenges will be dealing with the fallout – both immediate as well as longer term – of the Government's announced changes to superannuation settings, as part of its economic response to the pandemic. Virtually all aspects of a superannuation fund's operations will be impacted in some form or another, and we can also expect that the regulatory reform agenda will shift in light of the current crisis.
For more information, please see our latest insight on the impacts of COVID on superannuation.
The Coronavirus Economic Response Package Omnibus Bill 2020 has been passed and will amend the SIS Regulations to allow members to access up to $20,000 of their superannuation savings across the 2019-20 and 2020-21 financial years. Only one application for up to $10,000 can be made per financial year.
To apply, members must meet certain eligibility criteria, which include that they are unemployed, are receiving certain social security benefits, or on or after 1 January 2020, have been made redundant or had their working hours reduced by 20% or more. Members who are sole traders whose business has been suspended or has suffered a reduction in turnover of 20% or more can also apply. Members must make applications direct to the ATO. Once the ATO has made a determination in relation to the member's application, trustees will be required to pay benefits as soon as practicable, without requiring any additional application from members.
This extended early release option will be available for a period of six months following the amendments coming into effect (currently expected to be mid-April), although the Government may extend the measure beyond this timeframe, given the uncertainty as to how COVID-19 will progress.
Reduction in minimum drawdown rates for account-based pensions
In a bid to help pension and annuity account balances to recover from the economic shock stemming from the crisis, the minimum drawdown rates for retirees will be halved for the 2019-20 and 2020-21 income years, meaning that pensioners will be entitled to keep more money in the superannuation environment if they wish to do so.
Social security deeming rates
A reduction to the social security deeming rates has also been announced in recognition of the impact that a low interest rate environment has on an individual's expected savings income. From 1 May 2020, the upper deeming rate will be 2.25% and the lower deeming rate will be 0.25%, which the Government expects will mean an average increase of $105 to the Age Pension.
- Be ready for queries: The early release measure has been widely publicised in the media and forms a crucial part of the Government's financial assistance response. We expect the announcement will prompt a significant number of member enquires.
- Prepare communications: Fund websites should be updated as soon as possible with information about the new rules, its implications and links to the myGov website in preparation for when the changes take effect, which is expected to be mid-April. Information should also be published about the reduction in minimum drawdown rates where relevant, so that members can make a choice as to whether they wish to make changes to their drawdown amounts.
- Establish payment processes: Trustees should consider how they will confirm member identities and bank account details before payments are made. Paying benefits by way of cheque should be the option of last resort in the current climate as this typically requires members to physically visit a bank branch.
- Consider financial advice: There will be an important role for financial advice in supporting members who are considering whether to access their superannuation early (and take other steps such as moving investment options). Trustees should give thought to what steps they can take in either providing that advice (where they hold the appropriate authorisations to do so and have appropriate protections in place) or facilitating members' access to advice.
- Remember low balances: A watching brief should be kept on a possible increase in the number of low-balance accounts arising as a consequence of market movements or withdrawals. Processes for transferring accounts to the ATO and applying fee caps under the PYS legislation should be robust.
Funds will likely be able to pause or slow their preparations for a large number of upcoming regulatory changes.
APRA and ASIC have stated that many of their regulatory reforms will be suspended, but funds will need to await further announcements on some specifics.
The reform agenda previously slated to go before Parliament in the coming months will also be suspended. The Government has not made an official announcement on this – but in practice it will be on hold until at least Parliament's next sitting day, which has been postponed to 11 August 2020. This includes Treasury's Exposure Draft Bills to implement the last of the Financial Services Royal Commission Recommendations (a number of which had been proposed to commence on 1 July 2020).
Overall, funds can expect that:
- Supervision activities will be refocused. The regulators will switch their supervision focus to managing the response to COVID-19 and other serious or time-critical issues. ASIC regards outstanding customer remediation as being in this category and will work with businesses to accelerate payments. We expect the regulators may temporarily cut funds some slack on other existing or pending investigations (but funds cannot assume the issues will go away in the longer term).
- New regulatory measures may be introduced to respond to COVID-19. We expect the regulators will be actively considering whether any COVID-19 specific measures are required for funds.
- AFCA will consider COVID-19 circumstances when dealing with complaints. AFCA has said it will take into account the unprecedented circumstances (including if firms are not in a position to quickly act on requests for information). It has also said it will fast-track COVID-19 related complaints. Funds will need to be prepared to prioritise those complaints.
ASIC has said it may provide relief or waivers in response to difficulties faced by funds in the current environment. We expect APRA to adopt a similar approach. We recommend that funds be proactive in seeking relief where needed.
Last updated: 26 March 2020
COVID-19 is presenting developers, builders, investors and tenants with a multitude of issues to do with existing and proposed developments. In particular, these stakeholders are having to navigate issues associated with how COVID-19 could delay projects and who should bear the cost of those delays. While, to date, construction sites remain open, there is also a concern as to what could happen if construction sites were closed. We explore what rights and obligations developers, builders, investors and tenants will have in those scenarios.
Queensland has enacted legislation that gives the Minister for Planning the ability to extend or suspend timeframes under the planning legislation, including timeframes in the planning approval process. While no other states have yet followed suit, we expect varying degrees of delay across all jurisdictions – at least in the short to medium term. Delays in the planning approval assessment and appeal processes will occur, as councils and judicial bodies set up the required infrastructure and capacity for remote assessment and determination of planning approval applications. These impacts may increase should stricter lockdown measures be imposed at a state or federal level.
This will turn on the terms of your development agreement.
Your development agreement will allocate responsibility (usually to the developer) for obtaining and complying with conditions of planning approvals. This may extend to having positive obligations to defend or commence an appeal regarding the planning approval – eg where conditions are not satisfactory.
The obligation to obtain planning approvals will often be framed as a condition precedent. It will be important to identify whether there is a fixed date by which the planning approval must beobtained, or whether this date moves for extensions of time. If the date does move, then it will be important to identify whether COVID-19-type events fall within the scope of the extension regime.
Whether or not the builder is entitled to claim an extension of time will usually depend upon the terms of the force majeure definition in the particular construction contract.
Some contracts contain a force majeure clause that defines the concept of force majeure by reference to a specific list of occurrences. If such a clause does not refer expressly to disease, pandemic, epidemic or actions by government (or something similar), then it may be difficult for the builder to claim force majeure as a result of COVID-19-related disruption. We are nevertheless seeing some creative arguments that seek to rely upon other concepts such as 'natural disaster' referred to in force majeure clauses. However, such arguments – subject to the terms of the particular contract – are unlikely to succeed.
Other contracts define the concept of force majeure more generally, without limiting it to a specific list. For example, force majeure might be defined as an event or circumstance outside of a party's control; that could not have reasonably been foreseen; and, having occurred, the effect of it could not be avoided or prevented. Definitions of that kind are more likely to be satisfied as a result of COVID-19.
It is important to remember that even if the definition of force majeure is satisfied, there will likely be other requirements that the builder also has to meet, such as notice within the timeframe required by the contract and an obligation to mitigate the effect of force majeure to the extent possible.
The construction contract and development agreement or agreement for lease are not usually 'back to back' in relation to all risks. The particular clauses in each agreement will need to be analysed – you can't assume that the risk allocation will be identical under all project documents. Therefore, there may be circumstances where the builder can seek relief as a result of COVID-19 from the developer that the developer or landlord cannot seek relief from upstream.
There may also be a number of other gap risks that might arise if the disruption to the builder's ability to progress the project is prolonged where the builder cannot claim force majeure or other relief.
For example, the builder might reach the cap on liquidated damages under the construction contract. The developer may also have to deal with potential insolvency of the builder. These circumstances are also likely to increase the prospect of Security of Payment Act claims.
The Federal Government has broad powers under the Biosecurity Act 2015 (Cth). However, orders requiring work to cease will be issued by the states and territories.
For example, in NSW under the Public Health Act 2010 (NSW),the Health Minister can take any action that they deem necessary to deal with the risk to public health. The Chief Health Officer in Victoria has similar powers under the Public Health and Wellbeing Act 2008 (Vic).
Depending upon how the situation with COVID-19 develops, this could conceivably extend to ordering that more work cease than has already. However, to date the NSW Government has issued public statements in support of construction work continuing on major projects. While the approach has been largely co-ordinated to date, it is possible that not all states and territories will adopt the same position.
It will depend upon the terms of the particular contract (see the question above regarding whether the builder is entitled to claim an extension of time due to disruption caused by COVID-19). If a shutdown occurs, there is a risk the builder will be entitled to an extension of time but the developer will not be entitled to an extension under its development agreement or agreement for lease.
The existing legislation does not provide for compensation in the event that the public health powers are exercised.
Many construction contracts also contain 'Change in Law' provisions. Whether or not there is an entitlement for the builder or developer to claim relief relying on that clause will depend upon the terms of that clause.
Many change in law clauses require there to be a change in existing legislation or the enactment of new legislation for a change in law to occur. However, the orders issued to date in NSW and Victoria have not involved the enactment of new legislation but the issuance of orders or directions under existing legislation, which is unlikely to trigger a change in law clause of that kind. Clauses that are broader in scope, and extend to concepts such as orders and government directives, are more likely to be satisfied.
The builder (or the developer upstream) might be able to claim that the contract has been frustrated. Frustration is a common law doctrine. If the contract has been frustrated, the parties will be discharged from future performance from the point in time at which it was frustrated. However, accrued rights and obligations will remain enforceable (such as the dispute resolution provisions, or the obligation to pay a milestone payment for work already performed).
The doctrine of frustration has a very narrow scope. Frustration will not arise where there has been mere hardship – even if severe – where the event in question has been foreseen or where the change is only temporary or transient. However, with increasingly restrictive government measures being imposed, the possibility of a successful claim in frustration has increased.
A contract works insurance policy is likely to be in place on most major projects. Some of these policies are combined with 'delay in start-up' insurance. While the triggering event for cover under those policies is usually the occurrence of damage, some policies contain extensions that cover loss that arises due to denial of access to the project site. In the event that a complete lock-down is ordered, it is possible that cover will be available under policies of that kind for the loss arising as a result of the delay.
Claims by builders as a result of supply chain disruption might also be covered under contingent business interruption policies.
Whether a tenant is entitled to claim liquidated damages from the landlord or developer depends on the terms of the agreement for lease.
Often, a tenant will be entitled to liquidated damages if the landlord or developer does not achieve practical completion by a specified date. If the landlord or developer is delayed as a result of COVID-19-related disruption to such an extent that it cannot achieve practical completion by that date, the landlord or developer may be required to pay the tenant liquidated damages. This will be subject to the considerations regarding whether the landlord or developer is entitled to an extension of time (refer to the question above regarding whether a builder is entitled to an extension of time).
Landlords and developers should be conscious that tenants may suffer significant costs and losses if the landlord or developer does not achieve practical completion by the specified date. For instance, a tenant may be required to exercise an option under its existing lease or find alternative accommodation. The tenant would usually seek to recover these significant losses from the landlord or developer.
Agreements for lease sometimes include a 'look-forward' test under which a tenant can require an independent certifier to assess whether the project has a reasonable prospect of achieving practical completion by a specified date. If it is determined that there is not a reasonable prospect, a tenant may be entitled to trigger an option for a further term under its existing lease at the developer's or landlord's cost.
During the COVID-19 pandemic, it may be very difficult for a certifier to make a sensible determination. The longer the COVID-19 pandemic lasts, the more likely we think it is that 'look-forward' regimes could be triggered. Apart from tenant delays, look-forward dates are usually fixed dates that will not move for COVID-19 delays.
LESS SO THAN OTHER DEVELOPMENTS ARRANGEMENTS
Unlike other types of development agreements, the developer under a fund through agreement is not usually required to pay liquidated damages if it does not achieve practical completion by the date for practical completion. Usually, the coupon payments simply continue (or, in some circumstances, the coupon payments may slightly increase).
However, depending on the contingency in the developer's program, delays from COVID-19 could lead to the developer being at risk of not achieving practical completion by a sunset date, which can often lead to termination. This will be subject to the considerations of whether the developer is entitled to an extension of time (refer to the question above regarding whether a builder is entitled to an extension of time).