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Like many businesses, you may have entered into contracts or commitments to provide services for your clients before the COVID-19 crisis disrupted normal operations.
Although COVID-19 restrictions have relaxed significantly, and the business environment has evolved by 2025, you might still face situations where it is no longer possible to fulfil these commitments due to ongoing market uncertainties and emerging challenges.
For example, videographers may have collected deposits months in advance for events that are now cancelled or postponed. Or you might be a gym that, after a lengthy period of closure, still has members who paid upfront for an entire year. In these cases, your clients may be requesting a refund.
Providing refunds in today’s challenging economic climate can be difficult, especially when preserving cash flow is crucial to sustaining your business.
In these uncertain times, you might be feeling anxious about how to protect your business from going out of pocket while still meeting your contractual obligations.
So, what are your options?
You need to review your contracts, understand the legal framework behind refunds, and consider the practical alternatives available to you.
We recognise that this is a stressful time for many businesses that have made commitments to their clients, and our experience assisting clients through these challenges has shown that having legal clarity can make a significant difference.
In this article, we’ll walk you through what you need to know and what options you have – updated for the realities of 2025.
Check Your Contract
Many of your clients may be requesting a refund of their deposits (even if your contract states these are non-refundable) in light of ongoing economic shifts and unforeseen circumstances that have emerged since the pandemic.
So, are you actually required to provide those refunds?
The answer usually lies in the details of your contract with your clients. You should review whether your contract includes specific terms regarding refunds and cancellations – and if needed, obtain expert guidance via our contract review service.
Understand The Law Behind Refunds
Legally, you cannot stipulate in your contract that no refunds will ever be provided. However, you can set out reasonable circumstances under which a refund may be refused.
Whether or not you have a formal contract, the Australian Consumer Law (ACL) outlines the circumstances under which a customer might be entitled to a refund, credit voucher, or compensation. You can read more about complying with consumer guarantees here.
Additionally, the ACL prohibits unfair contract terms. If your refund or cancellation provisions are overly harsh, they could be deemed unreasonable and even void under the ACL.
Getting Out Of A Contract – Force Majeure and Frustration
Another option is to explore exiting a contract altogether.
Due to the ongoing impact of COVID-19 and other unpredictable challenges in 2025 – such as supply chain disruptions and market volatility – you may be able to invoke the “force majeure” or “frustration” doctrines under contract law to excuse performance.
A force majeure clause outlines the circumstances under which parties are not held liable for failing to perform their contractual obligations due to events beyond their control.
While COVID-19 might still be referenced in some contracts, many modern agreements now account for a wider range of disruptions, from infectious diseases and pandemics to broader issues deemed “acts of God”. It all depends on how your force majeure clause is drafted.
Typically, these clauses require you to notify the other party as soon as the event occurs and to take reasonable steps to mitigate the impact. However, some contracts contain narrow force majeure definitions, which can make relying on this clause challenging.
If a force majeure clause does not apply or is absent, you might consider relying on the doctrine of “frustration”.
Frustration means that a contract may be terminated if an unforeseeable event fundamentally changes its nature, making performance impossible or radically different than originally intended.
Because frustration has a very narrow scope, its applicability will depend on your specific circumstances. To better understand your position under these doctrines, it’s wise to consult with a lawyer through our Business Set Up services.
Explore Your Options
It’s vital to understand the legal nuances of your contract, as they directly affect the practical options available to you.
Firstly, in today’s economic climate, preserving cash flow is paramount. Issuing full refunds could create a significant financial burden, potentially forcing you to reduce staff or limit other critical operations.
Secondly, consider your client relationships. Maintaining long-term goodwill is often more valuable than an immediate refund, and your clients are likely facing similar challenges. The last thing you want is a dispute that could strain a valued relationship.
In light of these concerns, it’s practical to explore creative alternatives. For example, many airlines and event businesses are now offering credits or vouchers instead of direct refunds, preserving cash flow while keeping customer relationships intact.
The approach you take may depend on how you initially received payment – whether it was upfront, in instalments, or linked to project milestones. Understanding this can help you negotiate a mutually beneficial solution with your client.
Once you reach an agreement, be sure to document the revised terms in writing. Our contract review service can ensure that any modifications are both clear and legally enforceable.
| Example 1 Imogen owns a videography business specialising in events. She had several weddings booked this year, with deposits received well in advance. Due to updated public health restrictions and ongoing uncertainties, these events have been postponed or cancelled, and clients are now seeking refunds for their deposits. Imogen can propose several solutions to avoid immediate refunds and potential disputes. For instance, she could: Postpone her services to a later date. Both Imogen and her clients might agree to retain the deposit and reschedule the videography services for a future date when the event takes place. Offer service credits for future jobs. If her fees are calculated on an hourly basis, she may propose that the hours already paid be credited towards another event or video project the client may require later. |
Thinking Ahead
Whether you’re currently facing these tricky situations or simply planning ahead, it’s wise to be prepared for any eventuality.
By 2025, many businesses are taking the opportunity to review and update their contract terms in light of past experiences. Strengthening your agreements now can help safeguard your business against similar disruptions in the future.
This is also an ideal time to consider alternative arrangements to outright cancellations – such as offering credits or rescheduling services – to maintain positive client relationships and protect your cash flow.
If you’re uncertain about the current status of your agreements, consulting with a lawyer to review or redraft your contract is highly recommended. For further guidance on building robust agreements, you might find our article on what constitutes a solid contract insightful.
At Sprintlaw, we’re here to help. We offer a range of support packages for businesses impacted by ongoing disruptions, and you can access free resources and learn more about our services here.
Looking ahead, consider adapting your contract strategy to incorporate more flexible cancellation and rescheduling clauses. With businesses continually facing unforeseen events – from public health emergencies to supply chain issues – ensuring your contracts are robust enough to accommodate such changes can provide invaluable protection.
If you have any other questions, please don’t hesitate to reach out to our friendly team on 1800 730 617 or email team@sprintlaw.com.au.
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