COVID-19 is having a dramatic impact on all areas of the economy. On an individual level it is resulting in illness, isolation, and a loss of income.
Energy retailers provide an essential service that is at the foundation of our economy. In this article we look at the consequences of COVID-19 on energy retailers.
- Existing Contracts & Key Service Providers
Many energy retailers are reliant on third party service providers for functions including billing and customer service. Customer service is typically centralised in call centres which may, over the coming months, simply close down or have reduced capacity.
Energy retailers should review the contracts they have in place with key service providers and take particular note of the following:
- Termination for convenience
Now is an important time to review your service provider contracts and the circumstances in which termination occurs.
Should your contract expressly provide for ‘termination for convenience’ it may be open to your business or, potentially, the service provider to rely on such a clause. A termination for convenience clause allows the benefiting party to terminate the contract for any reason.
A termination for convenience clause removes the need to wait for a breach, repudiation, frustration, or some other stated termination trigger.
- Force Majeure
Force Majeure is an expression that derives from French Civil Law. A force majeure clause is a risk allocation mechanism used to limit the liability of a party for events which delay, restrict, or hinder the performance of the contract – where such events are beyond the control of the parties and fall within defined triggers.
The party seeking to rely on a force majeure clause has the ‘burden of proof.’ i.e. is required to prove that the clause has been triggered. The triggers of a force majeure event often include acts of God such as fire, storms, earthquakes, and floods, as well as civil unrest, strikes, riots, and acts of war or terrorism.
As COVID-19 has and will continue to have far reaching consequences, a force majeure clause may be triggered even where the clause does not specify that an epidemic or pandemic is a trigger i.e. triggered as a result of a secondary consequence of COVID-19.
Force majeure is different to frustration. Force majeure is a contractual construct and typically operates to suspend performance. Frustration, on the other hand, operates where the performance of the contract is impossible or radically different and termination results. As such, force majeure can only be relied upon if express provision is made for it within the contract (it cannot be implied as a term of the contract).
- Frustration
The common law principle of frustration may come into play where performance of a contract becomes impossible or illegal. For example, in the case of Taylor v Caldwell, a licence to use a music hall for a series of performances was held to be frustrated when the hall burnt down. As a result, the owner of the hall was not liable to reimburse the hirer for advertising expenses and the hirer was relived from the obligation to pay the licence fee for use of the hall.
A contract will be frustrated where, without the default of either party, circumstances would result in performance being radically different from that originally contemplated in the contract. So the question is (as expressed in Brisbane City Council v Group Projects Pty Ltd by Stephen J:) ‘how dramatic must be the impact of an allegedly frustrating event. To what degree or extent must such an event overturn expectations, or affect the foundation upon which the parties have contracted…’
In considering frustration, a court will look at whether events were foreseeable at the time the contract was made. Consequently, it will be harder to argue that COVID-19 has frustrated a contract made yesterday than it would be if the contract had been made in November 2019.
There are some clear cases where a contract will be frustrated: such as when a customer service team has been given an order by a government department to isolate themselves for a set period of time, their contractual obligation to attend a particular location to take calls will be frustrated.
- Customer Hardship
Under the Retail Law, all authorised retailers must develop, maintain and implement customer hardship policies for their residential customers. Hardship policies represent regulatory obligations- if a retailer breaches their hardship policy they will be in breach. Retailers are required to identify customers experiencing payment difficulties due to hardship and to assist those customers to better manage their energy bills on an ongoing basis.
COVID-19 clearly has the potential to cause financial hardship as families are isolated, unable to work, or unable to derive their usual income. Household illness is recognised, in standardised statement one of the AER’s Hardship Guideline, as being a factor that may give rise to financial hardship.
Given the increased likelihood of financial hardship over the coming months, retailers need to ensure that they strictly comply with the Retail Law and with their own Hardship Policies. Typically, this will mean that retailers:
- Need to exercise vigilance in their monitoring of customer accounts- specifically looking for customer’s self-identifying, for missed payments, and for customers who are sent disconnection warning notices.
- Should consider the assistance they are planning to provide to customers experiencing hardship as a result of COVID-19. There are a range of government rebates and concessions available and emergency payments- such as EAPA- that may be available to those experiencing hardship. Retailer should ensure that they are familiar with the support options available and that all customer facing staff understand the measures that can be taken to support someone experiencing hardship.
- Consider their approach to the disconnection of customers for non-payment. There is no prohibition on the disconnection of energy supply during pandemic- as there is during ‘extreme weather events’ (see r 108 of the National Energy Retail Rules) however there is a greater risk that a retailer will disconnect a customer who is in hardship at this time. Consequently, additional steps may need to be taken to ensure that disconnection is conducted in accordance with the rules.
- Business Continuity
As with all other businesses, retailers should be examining their business continuity plans and ensuring that they are fit for purpose.
Should your employees work from home, ensure that they are set up to do so and that you are discharging your obligations under Workplace Health and Safety legislation. Over the coming days we will be developing specific online training for our clients on working from home- including on how to set up a safe workplace, how to communicate with your staff, and what to avoid.
