Recently, the Australian Government has imposed restrictive measures as part of its response to COVID-19 which may have impacted a number of consumer contracts resulting in questions around cancellations and refunds.
CBS understands many businesses are struggling to manage cancellations at this time. Mindful of this we are urging consumers to remain patient, and where possible to contact the business by email or website, rather than by phone.
These are very complex issues and may take smaller businesses more time to respond.
The law around frustrated contracts and force majeure clauses within contracts (a specific type of clause within some contracts dealing with events outside of the control of the parties) is complex and CBS recommends that, given the extenuating circumstances caused by COVID 19, consumers and traders take all available steps to resolve any issues amicably and commercially.
This page provides some information about the law in this area but it does not amount to legal advice. Should you have a legal dispute around a consumer contract, it is recommended that you seek independent legal advice where required.
Look at the terms and conditions first
In the first instance, consumers should look to the terms and conditions of their contract to see whether it covers an epidemic or pandemic event.
Some contracts will include a “force majeure” clause which deals with events arising outside of the control of the parties.
In some cases these clauses give an affected party an ability to delay an obligation under an agreement and in some cases they will provide a right to terminate in the event of a force majeure event arising.
You should read these clauses carefully and seek legal advice if necessary as they will not apply in all instances.
What if the terms and conditions don’t cover a pandemic?
If the contract between a consumer and a trader makes no provision for events such as an epidemic or pandemic, it is possible in some cases that a breach of contract will arise if a party cannot meet its obligations (which might give rise to a right to terminate) or that a contract has been frustrated by the COVID-19 events.
Once again, whether a contract has been breached or frustrated will depend on the terms and conditions of the contract and the facts that have arisen.
A consumer contract may be “frustrated” if:
- An event outside the control of the parties to the contract has occurred (such as restrictions imposed by COVID-19) and as a result, the contractual obligations are incapable of being performed.
- The situation under the contract which has resulted from the COVID-19 restrictions is fundamentally different to what was contemplated by the consumer and trader when they entered into the contract.
If the contract has been frustrated, or the trader is unable to fulfil its obligations under the contract due to the COVID-19 restrictions, it is recommended that the parties should reach a resolution which ensures that neither party is unfairly advantaged or disadvantaged as a result.
A consumer contracts with a wedding business for an indoor wedding for 120 guests. The wedding can no longer go ahead as, under COVID-19 restrictions, weddings are limited to a maximum attendance of 5 people, and the 1 person per 4 square metre rule applies.
The wedding business is unable to perform its obligations under the contract, but not by any fault of the business.
The consumer has paid $8000 so far of a $16,000 fixed price contract, of which $3000 has been spent by the business on florist arrangements and invitations. The consumer should be entitled to a refund of payments made for goods and services not delivered.
In some cases, in order to reach a fair outcome as a result of the frustration, the reasonable costs already incurred by the business and costs of already having delivered part of the contract may in whole or in part be deducted from the monies to be refunded - although this will depend on the specific facts of each case.
You are advised to try to deal with these issues reasonably and amicably, but legal advice should be obtained if required.
A bride-to-be ordered her wedding dress online 4 months ago, paid a deposit and still plans to marry in 2 months' time, even though the ceremony will be limited to a maximum of 5 people.
She is worried that the dress won't arrive in time and wants to cancel her order and get a refund.
As the supplier has accepted payment for the wedding dress, they must supply it by the date they have indicated, or if no time was specified, within a reasonable timeframe. However, due to the impact of COVID-19 internationally, events may have occurred outside the control of the supplier which will prevent them from supplying the dress.
The consumer should discuss with the supplier whether the timeframe is still realistic and if the supplies confirms it is, the consumer is unlikely to be entitled to a refund if they changed their mind now and cancelled the order.
If the supplier indicates they cannot supply the dress within the agreed timeframe, the consumer should be entitled to a refund.
A restaurant takes a booking for 25 patrons for a 50th birthday in January 2020, due to be held April 2020. A $200 deposit is paid.
Due to COVID-19 restrictions the restaurant can now only provide takeaway food and alcohol. The restaurant offers the consumer a $200 voucher for cancellation to be used at a later stage.
The consumer demands a refund.
Given the 50th birthday cannot take place, it may be unreasonable to provide a voucher rather than a refund as the restaurant has retained funds for a service it cannot provide and in circumstances where the consumer is unlikely to want to rebook the event.
A consumer signed up for a 12 month gym membership in December 2019, with payment up-front. With all fitness centres being prohibited under COVID-19 restrictions, the consumer wants to cancel the membership and get a refund for the unused 8 months of the membership.
As the fitness centre is unable to supply the services for the 12 months contracted for due to events outside their control, the consumer should be entitled to a refund or credit note/voucher.
Where payments are by instalment over the 12 month period, the Australian Consumer Law prohibits businesses from taking payments for goods or services when there are reasonable grounds to believe the services won't be supplied.
The fitness centre is therefore not entitled to continue charging consumers while the fitness centre is closed.
Consumers should be entitled to a refund or credit note/voucher for the services which the fitness centre has been unable to supply under the contract.
What if I change my mind because of COVID-19?
If a contract is not affected by the COVID-19 restrictions but the consumer changes their mind because of concerns related to COVID-19 then, depending on the terms of the contract, they may not be entitled to a refund.
Consumers should look at their rights to vary or cancel under the contract in the first instance.
A consumer has booked flights and accommodation for November 2020 but now wants to cancel due to concerns around COVID-19. At this stage, it is too premature to say the contract is not capable of being performed as the situation may have changed by then allowing the contract to be fulfilled.
Cancelling now is likely to be considered a “change of mind” so in the absence of any rights to vary or cancel under the contract, it is possible that the trader would be entitled to keep any upfront payment.
A consumer has a ticket to an outdoor event which can still proceed under the COVID-19 restrictions on outdoor gatherings, however the consumer no longer wishes to attend due to concerns around COVID-19.
As the event is legally permitted to proceed, it is possible that the consumer is not entitled to a refund. However the consumer may still wish to contact the event organiser to see whether the organiser is willing to provide a refund or credit note.
Things to consider
Here are some helpful questions for consumers to consider in resolving disputes:
- Do the COVID-19 restrictions mean that the trader is unable to fulfil their obligations under the contract?
- How much money have I paid so far under contract and what did that cover?
- Is the trader offering a refund in any event?
- If the contract can still go ahead, but I am changing my mind, does the contract provide a right to vary or cancel? If so, in what circumstances?
- Has the trader incurred any reasonable costs under the contract before the COVID-19 restrictions took effect?
Visit the following website for additional information:
In addition to the disclaimers on the CBS website, users of this information sheet should note that information on this page:
- Does not amount to legal advice. You should seek your own independent legal advice should you require it in relation to a contract or dispute affected by or arising from COVID-19.
- The situation arising from COVID-19 is complex and constantly changing which could impact on the accuracy and currency of this information.
If you need further advice, contact Consumer and Business Services.