Effect of COVID-19 Level 4 Lockdown on Contracts

Effect of COVID-19 Level 4 Lockdown on Contracts

The Level 4 Lockdown for COVID-19 has had impacts on a number of areas. One of the crucial things is the ability of parties to make and adhere to contracts. We have provided some specific information in relation to commercial leases (here) and employment (here). This update provides some more general information about the principles of contract and how these are impacted.

Formation of Contracts

Generally, contracts in New Zealand do not need to be in writing or signed to be considered binding. There are a few exceptions to this, including things like agreements relating to the sale and purchase of land and wills.

Contracts that are not in writing can still be enforced. However, having agreements in writing and signed can help to avoid disputes later about what has actually been agreed to.

Signing of Contracts

In a remote working context, like the present, the typical methods of signing a contract electronically will include:

  1. E-signing, where one or more parties use an electronic signature to execute a document; or
  2. Sending electronic copies of signed documents: for example, where one party signs the original document, scans it and sends the electronic copy to the other party via email.

Generally speaking, most contracts can be entered into electronically, which means parties will be able to rely on the above methods for signing contracts during the lockdown period.

Electronic signatures can take a variety of forms, including:

  • A person typing their name into a contract or email with contractual terms;
  • A person pasting a scan of their signature into an electronic copy of the contract;
  • A person using an electronic signature platform to insert a typed or handwriting font into the execution block of an agreement; or
  • A person using an e-pen or finger to sign their name on a tablet.

Under Part 4 of the Contract and Commercial Law Act 2017, an electronic signature will be legally valid so long as it adequately identifies the signatory, adequately indicates the signatory’s approval of the information and is as reliable as the circumstances require.

Ability to Perform Contracts

Where parties are unable to complete their obligations under a contract because of a force outside the parties’ control, they may be able to argue that the contract has been “frustrated”.

If a contract has been frustrated, the parties can be released from any ongoing obligations under the contract.

Frustration only applies where the parties have not otherwise addressed such issues in the contract themselves. If there is a force majeure/business interruption clause, that is what will apply.

Frustration is highly fact specific. Before simply stopping complying with your obligations under a contract, you may wish to seek legal advice or discuss with the other party to the agreement.