The social isolation and social distancing policies implemented by various levels of Australian governments have had direct impacts on the ability of both customers and suppliers to perform under their contracts. For instance, venues are now unable to open at all, or are unable to accommodate large crowds, and equally, customers are unable to travel. Similarly, under long-term contracts, there might be annual instalments to be paid, and while performance in previous years was properly completed, performance may not be possible in the current environment.
In those circumstances, many parties are considering whether the terms of their contract expressly address the issue (for instance, through a force majeure clause) or whether other legal principles might apply, like frustration (and if that applies, whether restitution or one of the several Frustrated Contracts Acts in different jurisdictions may apply to offset any 'unfairness' that results).
When considering demands for payment in particular, it is also important to consider the potential application of the Australian Consumer Law (ACL), under the Competition and Consumer Act 2010 (Cth).
In substance, section 36 of the ACL provides that a person must not, in trade or commerce, accept payment for goods or services if at the time of the acceptance:
- the person intends not to supply the goods or services; or
- there are reasonable grounds for believing that the person will not be able to supply the goods or services at the agreed time, and the person ought reasonably to be aware of those grounds.
There are some limited exceptions, but this provision is potentially very powerful in circumstances where payment is being demanded by a supplier, but their ability to perform is inhibited.
One of the key reasons this provision is so important is that many parties would not be aware it is there. Unlike its counterpart under section 18 of the ACL, which prohibits misleading or deceptive conduct in trade or commerce and is familiar to every commercial lawyer, this provision is not as widely known. Its effect is equally as broad, though. Unlike many provisions in the ACL which are limited in their application to transactions involving consumers, this provision relates to a person acting in trade or commerce. That is, it applies wherever misleading or deceptive conduct claims could arise.
The potential sanctions are the same too – the maximum potential penalty for breach of this provision is the greater of $10 million, three times the benefit received from the impugned conduct, and 10% of global turnover. That is, this is potentially much more serious than many claims for breach, repudiation or restitution following frustration.
Given all of these factors, it is important to be alert to the potential application of this provision, both when deciding whether or not to seek payments, and when deciding whether to make payments. As commercial negotiations extend and cashflows are further compromised through a potentially protracted downturn, we expect this provision will have increasing relevance and importance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.