“Everybody knows that pestilences have a way of recurring in the world; yet somehow we find it hard to believe in ones that crash down on our heads from a blue sky. There have been as many plagues as wars in history; yet always plagues and wars take people equally by surprise.”
It takes a special group of people to think of the word “contract” when someone says “pandemic”. But that is the uniquely damaging thing about becoming a lawyer – it makes you think about the world differently.
Governments across the globe are encouraging people to stay at home and in some cases, such as the casinos in British Columbia, businesses are being forced to close. The workaday world is turning, seemingly overnight, into a brave new one where businesses struggle to meet their contractual obligations. The question that many contractors have is what happens if due to a pandemic crashing down on our heads out of nowhere, they are not able to perform their contractual obligations.
In many cases, the best option for parties to a contract is to be flexible in terms of deadlines in these uncertain times.
Most contracts contain a “Force Majeure” or “Act of God” clause that relieves a party of a deadline in the event of unforeseen events beyond the party’s control. Unforeseen events may be defined to include acts of any government, epidemics, quarantine restrictions ; they typically do not include things like a very busy day or the failure of a subcontractor to provide necessary labour . In application, the Force Majeure clause allows the party reasonable latitude regarding meeting the deadline. Ideally, the parties negotiate the revised deadline following an unforeseen event.
But what happens if a contract does not contain a Force Majeure clause? It can be argued that one is implied , but in times like these a judge may not want to hear a novel argument. Instead, a judge will probably be more receptive to an argument that the contract has been frustrated.
Frustration of contract “occurs when a situation has arisen for which parties made no provision in the contract and performance of the contract becomes a thing radically different form that which was undertaken by contract.” Arguing frustration of contract is essentially asking a judge for relief from a contractual obligation because a supervening event occurred that is not the fault of the party.
Regarding the coronavirus pandemic, the key issue when arguing frustration of contract is foreseeability. For example, if a contract was negotiated and agreed on November 1, 2019, then it would be much easier to argue that the pandemic was an unforeseen, supervening event, then if the contract was agreed on March 16, 2020.
Each contract is unique. Whether the coronavirus pandemic triggers the force majeure clause or frustration of contract will depend on your specific contract and the circumstances. If you would like to speak with a lawyer regarding how the pandemic affects your specific contract, then contact Jayme Yamaguchi at jayme@dbmlaw.tempbuild.net.