Is the pandemic an 'act of God'? Legally, it depends
TORONTO -- In the summer of 1861, a British event organizer rented out a music hall in Surrey, England with grand plans to throw a series of concerts. Unfortunately for him, before the first concert could take place, a fire ripped through the music hall and burned it to the ground.
While the blaze happened 159 years ago on the other side of the Atlantic, the legal implications are still present in Canada — particularly as the COVID-19 pandemic forces large events to be cancelled.
A judge determined that the contract between the event organizer and the owner of the burned-out music hall was to be excused because, without a usable venue, the contract could not be fulfilled.
The 19th-century case set the groundwork for what are known today as force majeure clauses. These clauses are often written into contracts to detail what sort of unexpected events, sometimes referred to as “acts of God,” could make it impossible for an agreement to be upheld. When successfully invoked, a force majeure clause can relieve a party from their contractual obligations or trigger a change within the contract.
These days, lawyers across Canada are closely analyzing force majeure clauses as physical distancing measures force hotels to cancel conferences, wedding venues to delay nuptials and many businesses find themselves unable to fulfil orders they promised.
In April, the Canadian Transportation Agency said exceptions within force majeure clauses may affect travellers' ability to receive refunds from airlines forced to cancel flights. In the NBA, a force majeure clause between players and the league means that players could lose one per cent of their salaries for each regular season game that isn’t played.
Miranda Lam, a Vancouver-based partner with law firm McCarthy Tetrault, said force majeure is a trendy topic nowadays, even if it may have only been covered “for 10 minutes” in her first year of law school.
She said it’s important to understand that these clauses aren’t a “get out of jail free card” for anyone with a contract.
“People think it’s something that they can just invoke. But if it’s not in the contract, it's not a right you have,” she explained in a phone interview with CTVNews.ca on Wednesday.
Not all force majeure clauses are created equal. Contracts often list examples of what kinds of cataclysmic events might count as force majeure: fires, floods or war. But if “pandemic” isn’t listed, then it’s up to legal interpretation as to whether or not these current circumstances apply.
“It really does come down to the language,” Lam said.
In most contracts, she said, the language around force majeure is broad enough that the pandemic should be considered. But Lam said she’s seen a few rare examples of “very old” contracts with restrictive definitions in which COVID-19 may not apply.
“Maybe in light of current events, people will be revisiting how broadly those provisions are construed. But I don’t think because it’s not listed, you’re necessarily precluded. It really does come down to the agreement.”
Nikki Rudachyk, a Saskatoon-based partner at McKercher LLP, said it’s “pretty rare” to see pandemics listed as an example of a force majeure in Canada. But in the aftermath of COVID-19, she expects Canadian courts will begin to consider the issue more broadly.
"Over the next five to 10 years, we’re going to see a development of where force majeure clauses are going to go, and where it’s going to tie into pandemics. And then we’ll know exactly what to do next pandemic,” she said.
But it’s unlikely that Canadian courts will ever offer their own list of events that qualify for force majeure, Rudachyk said, because courts have no way of knowing what the next major disruptive global event could be.
“They have to leave flexibility for what we can’t even contemplate,” she said.
So far Rudachyk said she’s seen businesses acting “pretty reasonably” and avoiding legal battles over the finer wording of their contracts.
“I’m seeing most companies, hotels and banquet facilities giving refunds. I’ve seen negotiations where things will be extended for another year … they’re pushing the deposit into the future.”
Large events, such as music festivals or corporate events, are among the more common examples of where force majeure clauses may apply, Lam said. Offering a bit more flexibility on meeting contractual obligations is something she said she’s encouraging her clients to do.
“People are more interested in preserving their relationships with each other than they are in enforcing their strict legal rights. And believe it or not, even as a litigator, I encourage that,” she said. “That makes good sense, not just commercially, but at a human level.”
Lam pointed out that, even if a force majeuere clause is invoked, it doesn’t always mean that a contract automatically becomes null and void. In some cases, the terms of the contract may change. For example, a company that promised to fulfil a delivery by a certain date may be given an extension.
Even so, the longer the pandemic plays out, Lam said she expects to see more organizations and individuals take a closer look at what leverage their contracts may provide.
“Do I expect more people to pay attention and invoke force majeure? Yeah, I do think so. It’s a concept that few people really thought about before the pandemic.”