COVID-19 Level 3 update 24/03/2020

At Midnight on Monday 27 April 2020 New Zealand went into Alert Level 3

NOTE: Those parts updated since our first Covid 19 Newsletter appear in bold

LEGISLATION

State of National Emergency

Declared on 25 March 2020 under the Civil Defence Emergency Management Act 2002, and extended to remain in place on rolling 7 day extensions, the current period due to expire at 12.21pm on 29 April 2020.
Grants civil defence emergency management workers rights to manage roads, traffic and public places, and provide first aid, shelter, food and accommodation.

(Legislation: Civil Defence Emergency Management Act 2002)

Health Act Orders – MODIFICATION ORDERS

Amendment and Extension Order – Isolation and Quarantine Requirements (travellers):
- All persons arriving in New Zealand by air must submit to certain medical examination and testing and be isolated or quarantined for 14 days in a designated facility. Persons in low risk facilities are permitted essential personal movement which includes limited recreation purposes and accessing emergency and medical services. Persons who test positive on arrival will be restricted to their room at the facility and food will be brought to them.
- Police have powers of enforcement.
- This order extends the expiry date for the 9 April Order.
- This order allows pilots, flight/maritime crew members to arrive without being subject to the above isolation or quarantine requirements.

(Order effective 6pm on 21 April 2020, and remains in force until 11 May 2020)

Amendment and Extension Order – Isolation and Quarantine Requirements (persons in New Zealand):
- All persons in New Zealand must remain in their current place of residence except for permitted essential personal movement, which includes accessing essential businesses (such as supermarkets, petrol stations), providing essential businesses, limited recreation purposes, authorised travel, shared custody arrangements, and accessing emergency and medical services.
- All persons must maintain physical distancing except to the extent necessary to access or provide an essential business.
- Police have powers of enforcement.
- This order extends the expiry date for the 3 April Order.
- It also allows “doing necessary work on closed premises” as a permitted Essential Personal Movement. This allows people to leave their homes to undertake necessary work at any premises to prepare for level 3, or to assist a fellow resident to travel to or from those premises for that purpose.

(Order effective 6pm on 21 April 2020, expires at 11:59pm on 27 April 2020, unless earlier revoked)

Amendment to Notice to Close Premises:
- All premises except as listed in the appendix to the order are to close until further notice. Exempt premises are residential premises, parliament, courts, prisons, premises for the performance or delivery of essential businesses – those that are essential to the provision of the necessities of life and businesses that support them.
- No person may congregate in outdoor places of amusement or recreation of any kind or description, public or private, until further notice (congregate does not include people maintaining 2m physical distance).
- Police have powers of enforcement.
- There is an exemption for necessary work in premises.
  - This allows people to access any premises to carry out necessary work between 11:59pm on 20 April 2020 to 11:59pm on 27 April 2020.
  - These include such as preparing the premises for opening (and meeting public health guidance) as well as cleaning the premises, plant and equipment, caring for animals, acquiring additional stock etc.

(Order effective 6.00pm on 21 April 2020, and expires at 11:59pm on 27 April 2020, unless earlier revoked)

IMMEDIATE MODIFICATION ORDER (IMO)

Epidemic Preparedness (Wills Act 2007—Signing and Witnessing of Wills) Immediate Modification Order 2020:
- The Government has made a temporary law change under the Epidemic Preparedness Act to modify the requirements for signing and witnessing wills under section 11 of the Wills Act 2007 to overcome the current impossible/impracticable statutory requirements with signing and witnessing requirement during the COVID-19 epidemic (i.e. requiring signing of the will in the physical presence of two witnesses).
- Wills are now able to be signed and witnessed using audio-visual means:
  - A person who is signing on the will-maker’s behalf (pursuant to section 11(3)(b)), can sign in front of the will-maker by audio-visual link from another place.
  - Witnesses can witness the will-maker sign a copy of the document by audio-visual link.
  - Witnesses can sign a copy of the document in front of the will-maker by audio-visual link.
  - All people signing a copy of the will must make it clear on the copy that it is signed this way because an epidemic notice is in force.
  - Photographs or scans of the signed copies must be sent as soon as practical to a person who has been chosen to hold the document and all photographs or scans of signed copies of the will. If a lawyer or trust company has been involved in preparing and witnessing your will, they can hold the document and all photographs or scans of signed copies of the will.

Epidemic Preparedness (Oaths and Declarations Act 1957) Immediate Modification Order 2020:
- The Government has made a temporary law change under the Epidemic Preparedness Act to modify the requirements for signing and witnessing of oaths, affirmations (such as affidavits) and declarations under the Oaths and Declarations Act 1957.
- The change clarifies that there is no requirement for a person taking oaths, affirmations or declarations to be in the physical presence of those making them. The witness is also not required to physically sign the same document as the person making it.
- These can now be administered using audio-visual means.
- Other requirements for taking oaths, affirmations and statutory declarations remain the same.

It is important to note that these changes are temporary and the modification order will expire after the Epidemic Notice is lifted

Level 3 Measures (NB: Level 3 is not effective until midnight on 27 April 2020)

Restrictions on activities remain, including at workplaces and socially
Stay at home, other than for essential personal movement, work and school
Stay in extended bubble, now including caregivers or close family
Social distancing of 2 metres still applies except for emergency and frontline public services
1 metre distancing permitted in controlled environments (which allow contact tracing)
Essential travel only, but permitted between regions and locally for essential reasons including work and limited recreational purposes
Public venues remain closed, as do shopping centres, cinemas.
Primary care facilities and pharmacies remain open
Work from home required unless it is not possible
Workplaces that are permitted to operate must do so safely, meeting appropriate public health requirements, and without customer contact
Schools from early childhood through to and including year 10 will re-open but attendance is voluntary and home schooling measures will continue. Children encouraged to remain at home if caregiving is available
Construction will be able to recommence subject to implementation of workplace requirements. See Construction Accord (below) re protocols for the industry to be applied in Level 3.

Companies Act 1993 Proposed Changes

Proposed legislative changes:
- “Safe harbour” scheme
  - gives relief from insolvency duties under the Act for directors of companies facing liquidity issues, to allow directors to make efforts to retain and revive a company rather than be forced into an insolvency measure because of the risk of personal exposure.. Other duties, such as to act in good faith and not dishonestly incur debts, will remain. The change will allow directors to keep trading and take on new obligations without breaching duties if:
    - the directors consider, in good faith, that the inability to meet debts within the next 6 months is a result of Covid-19;
    - the company was able to pay its debts as they fell due on 31 December 2019;
    - the directors consider, in good faith, that it is more likely than not that the company will be able to pay its debts as they fall due within 18 months.

Business debt hibernation “Covid-19 Business Standstill” or “CBS”
- allows directors to liaise with creditors with a proposal for hibernating debts, to allow directors to retain control of the company rather than passing control to an insolvency practitioner
- will provide certainty to existing and new creditors in respect of voidable transactions
- 50% of creditors must agree to the directors’ proposal for hibernating the business, with one month from the date of notification of the proposal to vote on it
- one month moratorium on enforcement of debts from the date the CBS proposal is notified
- six month moratorium on enforcement of debts if proposal is passed
- CBS will be binding on all creditors other than employees (subject to conditions within the proposal)
- if CBS is rejected, existing insolvency options are available (for e.g. voluntary administration)
- if the CBS is agreed, the business can continue to trade (subject to restrictions or conditions in the CBS)
- payments made at arm’s length and in good faith to third party creditors would be exempt from the voidable transactions regime, i.e. no ‘clawback’. This does not apply to related parties.
- the regime is available to all business entities (including partnerships, trusts etc.) other than sole traders (the ability to distinguish business from personal debts is considered to be too difficult)
- no confirmation yet as to effect on termination rights for insolvency events in existing contracts

Voidable transactions clawback period reduced from 2 years to 6 months
- Allowing the use of electronic signatures in security agreements containing powers of attorney. This is a temporary change only.
- Temporary extension of various statutory deadlines under the Act (in relation to meetings and reporting for companies and other entities, for example annual return filing)
- Temporary relief where an entity is unable to fulfil an obligation under its constitution

(Legislation still to be passed, but is proposed to be backdated to 3 April 2020).

Taxation Measures

Depreciation – depreciation deductions at the rate of 2% for commercial and industrial buildings, to assist businesses with cash flow and encourage investment in property to assist in the economic recovery. This does not apply to residential buildings.
Discretion to be given to IRD to temporarily change dates, timeframes and procedural requirements where businesses and individuals are affected by Covid-19. It is expected, for example, that interest on late tax payments may be waived where it can be shown that tax payment difficulties have occurred as a result of Covid 19.
Other assistance available includes: application for early refunds on provisional tax, extension of filing dates, write-offs due to serious hardship.
Tax Loss Carry-Back Scheme (temporary) – businesses expecting to make a loss in either the 2019/20 year or the 2020/21 year would be able to estimate the loss and use it to offset profits in the past year. In other words, they could carry the loss back one year, and means tax already paid for the year in profit could be refunded, and businesses could cash out some or all of their losses in 2019/20 or 2020/21.
Tax Loss Carry-Back Scheme (permanent) – applying to 2021/22 and later income years also proposed (public consultation commences in second half of 2020).
Relaxation of tax continuity rules, from current “51% change” rule to a “same or similar business” test, modelled on Australian tax rules. This will allow wider options for capital raising for businesses (public consultation commences in second half of 2020).

Commercial Tenancies

Click here to review our leasing update.

Residential Tenancies

Temporary rent freeze: no rent increases for any residential tenancy.
Rent increase notices given prior to 26 March that had not come into effect, are no longer of any effect.
Rent freeze continues for 6 months from 26 March 2020.
Maximum fine for breaching the rent freeze – $6,500
Tenancy termination restrictions: no tenancy can be terminated without agreement of all parties.
All fixed term tenancies that expire will continue as a periodic tenancy except where specific and limited reasons apply.
Tenancy termination restrictions apply for 3 months from 26 March 2020.
Termination for non-payment of rent not available until rent is 60 days overdue. The Tenancy Tribunal will take into account fairness and the tenant’s efforts to pay when considering the termination order.
Tenant may elect to remain in the tenancy even if it has given a notice to terminate prior to 26 March.
Where an outgoing tenant elects to (or must, because of travel restrictions) remain in the tenancy, any incoming tenant has no right to occupy the premises.
Maximum fine for breaching tenancy termination restrictions – $6,500
Privacy: a tenant is not required to inform their landlord of their or any resident’s Covid-19 status. A tenancy cannot be terminated on the grounds that the tenant or a resident has tested positive for Covid 19.
Tenanted properties
- Landlords are able to carry out virtual inspections provided they have the tenant’s consent and do not interfere with tenant’s reasonable peace, comfort or privacy.
- During alert level 3, in person inspections can only go ahead during emergency situations (e.g. emergency maintenance).
- Landlords can now tenant vacant property during level 3.
- More guidance to be released by relevant authorities.

POLICY

Courts

Throughout Alert Level 4 courts will continue to operate, with certain proceedings being prioritised (those affecting detained individuals, personal safety and wellbeing, or time critical proceedings), and proceedings outside those categories being heard as capacity permits. During Level 3 more people are permitted to attend some hearings, though it is still very limited.
All new jury trials have been suspended from Monday 23 March up to 31 July 2020.
Certain cases and evidence can still be heard by AVL or on paper.
The ability to hear oral evidence is very limited.
Registries of all courts remain open for filing and processing of documents by mail or email, but are working at reduced capacity to maintain safe working conditions.
Delays should be expected but capacity is expected to improve over coming weeks.
Remote technology will be implemented to recommence hearings for appropriate cases, including liquidation and bankruptcy lists.
Remote technology is a temporary measure and delivery of justice in-person will be returned to when permitted.

LINZ

Survey and title transactions submitted electronically are still being accepted by LINZ.
Application for lapsing of caveats against dealings (under s143 of the Land Transfer Act 2017) are not being processed because of difficulty in complying with service and notice timeframes. Withdrawals of caveats by caveators are still being processed.
Manual dealings are not being accepted.

Construction Protocol

Under Alert Level 3, on-site work is permitted for the Building and Construction sector, provided a COVID-19 control plan (required for level 2 and above) is in place to ensure the working environment meets COVID-19 health and safety requirements. The COVID-19 Construction Sector Health and Safety Framework and what information is required in a control plan can be found on CHASENZ’s website https://www.chasnz.org/covid19.
Other services such as Plumbers, electricians and tradespeople can also work from customers’ properties (including homes), with physical distancing and record keeping for contact tracing purposes.
To ensure the sector has the materials it needs, retailers and suppliers can supply goods to customers by phone or online order and contactless delivery or pick up.
From 22 April 2020 businesses are allowed a minimal number of people on-site to prepare the workplace for safe opening under Alert Level 3, this includes:
- Setting up health and safety provisions to meet site specific health and safety protocols;
- General site safety assessments and to assess and make plans for any identified risks
- Post-shutdown site engineering testing
- Deliveries of goods and materials required to restart site operations

The Accord, a collaboration between private and public sector construction industry leaders, is advising the Government on how the industry can be maintained during and after the Covid 19 virus.
A Response Plan has been developed for the sector focusing on maintaining potential projects during the lockdown, implementing measures to expedite recommencement or commencement after the lockdown, health and safety guidelines for the post virus environment, and financial support for the industry during and after lockdown.

Employment & Wage Subsidy Scheme

Subsidy available to businesses which experience a 30% drop in turnover in any of the months of January to June 2020 (compared to the same period last year), and that decline is related to Covid-19. The business must have taken active steps to have mitigated the impact of Covid-19 on the business. Available also to businesses that have been operating for less than a year that can show a 30% drop compared with a previous month.
Set rate of $585 per full-time employee per week, taxable in the hands of the employee and subject to student loan, family support and other usual deductions (not subject to GST).
Businesses receiving the subsidy must undertake best endeavours to pay employees 80% of previous income, and if that is not possible then the whole of the wage subsidy is to be paid to each employee (unless its usual wage is less than the amount of the subsidy).
Business must also keep the employees in employment for the period of the subsidy (up to 12 weeks).
The scheme is open to all employers, sole traders, self-employed people, registered charities and incorporated societies registered and operating in New Zealand.
Applicants granted the subsidy will appear on a publicly searchable register.
Privacy: employers must be careful to comply with privacy obligations in respect of employees, including in respect of the employees’ health information. For situations where there is a necessity to prevent or reduce the risk of a serious threat to the health and safety of others there are exceptions under the privacy legislation.

HEALTH AND SAFETY

As we will shortly be moving to alert level 3, businesses need to start getting ready now for a safe return to work (if applicable to their worktype)..
High level details of what workplace activities are permitted at different alert levels can be found on business.govt.nz
Businesses in the construction industry should prepare and implement their site plans and processes with worker engagement and participation to ensure that these are embedded in practice.
Workplaces should have procedures in place to:
- minimise, or eliminate if possible, physical interactions among staff with and between customers;
- ensure appropriate health, hygiene and safety measures; and
- restrict activity to only what is permitted at the relevant Alert Level.
During both the Level 4 and Level 3 phases, all work other than essential business must be carried out remotely.
- section 20 of the HSWA includes a worker’s home or vehicle in the definition of a workplace, so will continue to apply if a business has employees working from home. Employers must ensure the health and safety of employees who are working remotely during the pandemic, so far as is reasonably practicable.
- procedures should be put in place to ensure employees are undertaking work safely, such as information on how to set up their workspace remotely (desks, headsets etc.) This will ensure that there are no hazards caused by the at home set up, such as poor workstation set up, or trip hazards caused by cords.
- Employers should be in regular contact with employees (via phone, zoom etc.) to ensure not only their physical health and safety when working from home but also their mental health.
Section 83 of the HSWA, states that an employee can refuse to work if they have reasonable grounds to believe that the work they are required to perform is likely to expose them to a serious risk to their health or safety arising from an immediate or imminent exposure to a hazard.
Regardless of the uncertainties and pressures created by COVID-19, businesses are still expected to meet their legal obligations in undertaking their work.
WorkSafe is clear that it will not tolerate PCBUs using COVID-19 as an excuse to endanger employees or the public. PCBUs must still eliminate or minimise where is not possible to eliminate work health and safety risks so far as is reasonably practicable.
WorkSafe recognises that essential services may need to manage work health and safety differently during the Covid Alert Levels. Some of the usual risk mitigations we would expect to see in place may not be possible without compromising the delivery of essential services.
WorkSafe won’t take enforcement action if a PCBU’s actions meet its expectations under HSWA, even if a worker or other person contracts COVID-19.
Notifiable events must still be reported, although WorkSafe’s capacity to respond may be reduced.

Business Finance Guarantee Scheme

Government guarantee of 80% of a bank loan for approved borrowers (according to individual bank assessment criteria).
Available for businesses with an annual turnover between $250,000 and $80 million.
Maximum loan that can be guaranteed is $500,000, guarantee term maximum is 3 years.
The purpose of the loan must be cashflow related, with certain excluded uses including capital projects.

Retail Bank Mortgage Holiday Scheme

The Government has worked with retail banks to enable banks to offer deferment of repayments for residential mortgages for up to 6 months.
Interest will still accrue, deferred interest will be added to the principal amount of the loan.
Each bank has its own criteria for assessing suitability for each customer and for implementing the deferral.

Execution of Documents

Simple contracts and deeds may be signed in ink and scanned. A counterparts clause should be inserted to allow for signatures on separate pieces of paper that will be considered a single document. In practice, electronic signatures such as scanned ink signatures, tick to accept, or typed names have been accepted forms of execution for certain types of documents. However, this essentially depends on what the party or parties expecting to rely on the document is willing to accept. Some may require original ink signed documents to follow scanned documents, or may require a more secured form of electronic signing (see digital signing below).
Generally, electronic execution of documents is allowed by the Contract and Commercial Law Act 2017 provided that:
- there must be an ability to link the e-signature to the signatory and no other person;
- the means of creating the e-signature was under the control of the signatory and no other person;
- any alteration of the e-signature made after the time of signing is detectable;
- if the parties are relying on the e-signature to provide assurance as to the integrity of the information in the document then any alteration of the document must be detectable after the time of signing.

This means, insertion of a ‘cut and paste’ of a scanned ink signature is not sufficient for the purposes of the Act and cannot be relied upon.

Digital signatures, a form of electronic signature, provide a higher level of security and are able to provide confirmation that the copy of the contract is the correct copy. A digital signature is encrypted into a document meaning the document cannot be subsequently amended without it being easily apparent. This provides the necessary assurance for parties to be able to rely on the integrity of the document at the time of signing.
During Covid-19 Alert Levels 3 and 4, Courts may accept unsigned or noncompliant documents for filing in priority cases.
Remote witnessing using audiovisual technology is possible for certain documents including Authority and Instruction forms (LINZ) and most deeds. See also earlier commentary on this topic. Keeping a video record of any remote witnessing is a recommend practice.

ADDITIONAL COMMENTARY

Property

During Alert Level 3 – house movement will be permitted with restrictions
- People can move homes and this includes rental moves. They can travel between regions, including using domestic air services for the purposes of moving house. All freight can be moved around the country at Alert Level 3 and moving companies can operate as long as they do so safely.
- In person viewings could mean a number of people entering the property even if they are present at different times, and those people can view many properties on a given day. Therefore, where possible, the physical interactions involved in house sale, purchase and settlement should be done remotely during Alert Level 3. Minister Megan Woods has noted that if in person viewings are to occur, they will be limited to two per day. For tenanted properties or homes with current occupants, they would need to vacate the property for in person viewings to happen.
- It may be possible to do a final pre-settlement inspection in person, or have a real estate agent come into the home, as long as all physical distancing and public health measures are taken.
- For those that may have already deferred settlement to after alert level 2 per the recommendation of the Law Society, affected parties are now free to negotiate whether to bring settlement earlier and to discuss details of how to carry out the physical movements and interactions in a safe manner.

Frustration

A contract is frustrated when it is incapable of being performed due to unforeseen events outside the parties’ control and for which they are not responsible, resulting in the contract obligations becoming fundamentally different to those originally contemplated or impossible to perform.
When a contract is frustrated, it terminates automatically at the time of the frustrating event rather than at the election of either party. The parties are excused from future performance.
Frustration is separate to a force majeure clause, which might terminate contractual obligations or put them on hold. A force majeure clause should be examined carefully to determine whether it is triggered by Covid-19 restrictions. Applicability will depend on the exact wording of the clause. Frustration is a different concept that might be raised by a party if there is no force majeure clause or a force majeure clause is not triggered.
The threshold for frustration is high, particularly in a leasing context. To date there have been no successful commercial lease frustration claims in New Zealand, though the courts have accepted that a lease could be frustrated in principle.
Courts will consider a wide variety of factors when assessing whether a contract has been frustrated. The introduction of a government directive or change of law that means performance under a contract is illegal may lead to a finding of frustration, dependent always on the particular circumstances of the contract.
Temporary impossibility of performance will not frustrate a contract, and therefore the length of remaining term of a contract and the length of time that Covid-19 restrictions render performance impossible or fundamentally different under that contract will be key when considering the likelihood of frustration applying.
A change in circumstances that results in performance of a contract becoming more expensive or onerous is not enough to establish frustration.
There is no scope for partial frustration- it is all or nothing. Partial impossibility of performance can only lead to frustration where the main purpose of the contract is defeated.
A contract cannot be frustrated if the frustrating event is accounted for in the contract terms. For example, the presence of a ‘no access’ clause in a lease that applies during Covid-19 restrictions likely means that the lease cannot be frustrated if the premises cannot be accessed.
Parties should be cautious when refusing to perform obligations under a contract because that carries the risk that the other party alleges breach of contract and claims damages.
On balance we consider it is unlikely that frustration will apply unless the lock-down period extends for some time or the period of lockdown is substantial in relation to the time for performance of the contract.

Legislation, policy and information relating to Covid-19 changes rapidly and often. The information provided in this update is current only as at the time of issue of this update. The information provided in this update is intended as a quick reference guide to various sources of information only and cannot be relied on as legal advice of any sort.