The law recognises that in certain events which are beyond the control of a party that it is not fair for that party to have to continue to comply with the contract. In light of COVID-19 it is prudent to consider if the pandemic might be a trigger for this in your contracts.
The first step is to check what the contract actually says. It won’t apply if there is no such provision in the contract. Normally it will be called a “Force Majeure” clause. The courts will generally have a high standard if a party wants to rely on this as a grounds to not fulfill the contract. The sort of factors which will be relevant are:
- How are the events described? Is it generic or specific? In this particular case it will be relevant to see if there is any reference to “disease” or better, epidemics? If there is a reference to an “Act of God” then that might arguably cover this too. The most important thing is to check the specific words.
- Even if there is an event, does that mean that the performance cannot be done? Just because something costs more doesn’t make it impossible – it may be that you still have to comply. Again, the context is key.
- A party needs to be in control – one of the things I have seen is some arguments that a “strike” should be a force majeure event – if it is listed then it may be, but typically the management can control a strike occurring, or not. So, it might not qualify as a force majeure event. When it comes to COVID-19 again it may be that a party has no control.
- The last factor relates to mitigation. A party should take steps to ensure that the contract is complied with (ie they are mitigating and stopping the impact, if they can).The key point here is perhaps that the wording of the contract needs to be reviewed. If there is no such clause then it might be possible for the doctrine of frustration to apply – this is where an event makes performance impossible compared to what had been agreed. Again, context is key.The other thing to look for in contracts would be a “material adverse change” clause – these can apply where an event occurs that means the contract is affected. You should also review any termination clauses just to see what they provide for eg 30 days written notice?Start by reviewing your contracts and consider your current situation and what the next few weeks and months will hold. If you would like to discuss your contract and situation then we would be happy to do so.
This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. For any questions, feel free to contact Steven Moe stevenmoe@parryfield.com or Kris Morrison krismorrison@parryfield.com at Parry Field Lawyers.
