The proliferation of COVID-19 has caused significant disruption to daily life for populations and businesses alike all around the world. As governments at all levels implement strategies to curtail the lethal potential of the virus, a return to normalcy appears to remain a distant fantasy.
In Ontario, a Declaration of Emergency has seen measures put in place which have closed all non-essential workplaces as well as all outdoor recreational amenities and have prohibited events and gatherings of more than five people. The orders bringing such measures into force are in place until at least April 13th, 2020, however, they have already been extended from an earlier date.
These measures have caused significant disruptions to supply chains, the accessibility of commercial, recreational, and event spaces, international travel options, and other business operations generally. As a result, both businesses and individuals are re-evaluating their future plans and any contractual obligations that have been similarly impacted. With the performance of many such contracts being prevented by the restrictive measures implemented in response to the virus, affected parties are looking to their contracts to determine if any relief is available.
The Doctrine of Frustration
The doctrine of frustration holds that a contract may be terminated without liability when some unforeseen event or change in circumstance, for which neither contracted party bears any fault, substantially changes the character of the contract such that performing it no longer reflects the original intentions of the parties. Essentially, the performance of the contract has become impossible by virtue of the unforeseen changes.
In order for the doctrine of frustration to apply, the changes to the circumstances in which performance is called for must have been unforeseeable at the time the contract was made, and such changes must be outside of the control of the contracting parties. If a contract is frustrated, it could bring an end to the obligations outlined under said contract.
Force-Majeure Clauses – Planned Responses to Unplanned Events
Many comprehensive contracts also contain what are known as “Force Majeure” clauses. Such clauses are intended to address what happens when certain unpredictable or unplanned events take place, such as an outbreak of a disease, changes to laws, or other extreme events like war or natural disaster. Typically, a force majeure clause will operate to absolve the party who can no longer perform their obligation due to the unforeseen circumstances from any further liability under the contract. Such clauses are often written uniquely for the contract to which they apply, however, and so special attention must be paid to the language of the contract to understand the full impact of the provision.
It is not an automatic that COVID-19, nor the responses implemented in response to it, would necessarily trigger either a force majeure clause or the doctrine of frustration. While the virus is likely to be seen as an unforeseen circumstance, the viability of performing a contract in light of the current reactionary measures is to be assessed on a case by case basis. Simply claiming that the coronavirus prevented the completion of a contract is not enough without also being able to explain why, and why other alternative measures could have been taken to try to satisfy the contractual obligations.
The above article has been prepared for informational purposes only and is not designed to be legal advice. If you have questions about your contractual obligations in light of developments surrounding COVID-19 or the government responses to it, then please contact us today to have one of our experienced lawyers review your situation with you.