CANCELLATION OF EVENTS AND CONTRACTS
The current pandemic has wide-reaching implications and it is very difficult to say with any certainty how a court will deal with some issues going forward. It is possible that the government will look to legislate to provide relief in circumstances where the courts would otherwise determine liability and/or that the courts will address issues in line with a wider public policy stance. That said, the following should be borne in mind if you are facing an event or contract cancellation.
When cancelling or facing the cancellation of an event or contract as a result of Covid-19, the first point of reference will be the terms of the contract concerned. These may be oral or they may be in or evidenced by some written document (such as standard T&Cs). The most pertinent provisions of any written agreement will be any Force Majeure, cancellation and termination clauses.
Many parties are relying on ‘Force Majeure’ when cancelling events. The right to terminate a contract by reason of the occurrence of a ‘Force Majeure’ event only arises, however, if there is an express Force Majeure or Force Majeure type clause in the contract. If there is, the definition of Force Majeure in that clause should include the circumstances that you are facing. It should not be taken for granted that it will, simply because of the enormity of the situation that we are all facing. And it should not be assumed that certain automatic consequences will flow from the Force Majeure clause. Generally speaking, the clause itself will set out and determine the consequence of the occurrence of a defined 'Force Majeure’ event, including on what party any financial liability falls.
In the absence of express provisions, the Law Reform (Frustrated Contracts) Act 1943 may kick in to prevent any one party being unjustly enriched by the triggering event. This leads us on to the other term that we are hearing a lot in the context of event cancellations, namely ‘Frustration’. ‘Frustration’ is a legal doctrine that applies when an event occurs beyond the control of the contracting parties which makes the contract impossible to perform (the bar on ‘impossible’ is set high). We are hearing the terms ‘Frustration’ and ‘Force Majeure’ used inter-changeably, but they are not the same thing. Indeed, a carefully drafted ‘Force Majeure’ clause can actually prevent or inhibit a party’s ability to rely on ‘Frustration’ but where there is no Force Majeure clause or it is incomplete (including in respect of where the financial liability falls) the law of ‘Frustration’ may well apply. This briefing note is not and is not intended to be professional legal advice. It merely sets out certain key points to bear in mind as you navigate these difficult and uncharted waters. The position in each case will turn on the facts and the terms of any contracts, and you should make sure that you seek specific advice in each case, from your usual contact at Clintons.