COVID-19 is wreaking havoc on our lives and our livelihoods. As a small business owner, one of the many problems you may be facing is how to deal with contracts that you can no longer perform, due to the pandemic.
Your contract may provide some guidance on how to proceed in these uncertain times. Some contracts will include a force majeure clause that would excuse you from performing your obligations in specified circumstances. These circumstances are typically described as “Acts of “God” or refer to natural disasters or political upheaval. Rarely, these clauses may also refer to health crises such as epidemics, outbreaks, or pandemics (and it is safe to say that more force majeure clauses will refer to pandemics or quarantine from now on!) There might also be some kind of “catch-all” wording that you could rely upon. Whether or not the force majeure clause in your contract would cover the COVID-19 outbreak depends on the wording of your contract and the industry you are in.
In the absence of specific language covering a health crisis in the force majeure clause, the argument could be made that the pandemic is an Act of God. That, my friends, is a can of worms. I have no doubt these arguments will play out in the courts in the future, and it should result in some very interesting case law.
If your contract doesn’t have a force majeure clause, or such clause doesn’t cover a pandemic, you might consider whether the contract has been “frustrated” by this pandemic.
A contract will be frustrated when, due to unforeseeable circumstances completely outside the control of the parties, it becomes utterly impossible to perform the contract. This means much more than the sudden inability to pay amounts owing under the contract. Availability of goods or venues may factor in. A slight delay in completing the contract would not frustrate a contract in most cases. However, as we are learning here in week two of self-isolation, we are in for much more than a slight delay.
If a contract is frustrated, the parties are typically released from any further obligations to perform that contract. Where it gets complicated is determining whether anyone is entitled to any refund or further compensation. In BC the Frustrated Contract Act applies where a contract does not specifically address the issue.
If you have any questions about your contracts that have been affected by this crisis, please feel free to contact me. I cannot help with contract disputes, but I would be happy to look over your contract and refer you to a litigation lawyer if needed. Please do not send me any documents until after I have agreed to work for you and we have formalized our solicitor-client relationship.
This article is intended to provide general information only and is not legal advice.