Across the cultural sector venues have shut down because of the Coronavirus pandemic and everyone is trying to manage the fallout. Suddenly, force majeure – one of those often ignored boilerplate clauses in a contract – is having its moment in the sun.
Force majeure (superior force in French) is not a freestanding legal concept that can always be invoked to terminate or vary a contract. Rather, it is a type of clause that is often, but not always, included in a contract in order to address the consequences of an unforeseen circumstance that is caused by a superior force and that could impact on the contractual obligations of the parties.
A good example of where force majeure could be relevant is corporate events. Two of the consequences of the Coronavirus pandemic are that: (a) people observing the Government’s advice on social distancing no longer wish to attend large gatherings or gatherings in smaller public spaces; and (b) the closure of venues across the country means that those events cannot take place. What does that mean for venues and hirers that have booked events? What are their rights? This article attempts to answer those questions.
Does your contract include a force majeure clause?
Unfortunately, if you do not have a written contract or your written contract does not include a force majeure clause then this article will be of little benefit to you. Force majeure provisions will not be implied into a contract. Having said that, sometimes a force majeure clause is hidden away in an agreement and might not involve the use of the phrase “force majeure”. A clause that talks about the consequences of “unforeseen circumstances” or “acts of God” should be regarded as a force majeure clause for these purposes.
There is an alternative legal concept called “frustration” which might help in the absence of a force majeure clause. A contract may be discharged on the grounds of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible (and impossibility is a difficult hurdle to overcome) to fulfil the contract, or transforms the obligation to perform into a radically different obligation. If you think this might apply in your circumstances please read this article on Coronavirus and Frustration.
How is force majeure defined?
Force majeure is not defined by statute or case law so it means whatever the contract says that it means. The Association’s template venue hire agreement (part of a suite of template agreements available to Association members) defines circumstances of force majeure as:
circumstances beyond the reasonable control of [a] party where those circumstances;
(a) render the performance of the Agreement by that Party impossible, significantly more difficult or meaningless; and
(b) were not reasonably foreseeable on the Commencement Date.
If you use the Association’s template venue hire agreement then you have very strong grounds for arguing that the Coronavirus pandemic is a circumstance of force majeure. The spread of the pandemic and the Government’s advice on social distancing are outside of the reasonable control of the venue. The hosting of an event against the backdrop of that advice (as at the date of this Article) is significantly more difficult than it would be in normal circumstances so a decision to close a venue or cancel an event is consistent with that advice.
However, if a booking was accepted after the Government advised that large gatherings and gatherings in smaller public spaces should be avoided then the parties will struggle to argue that the consequences of the Government’s advice was not foreseeable.
I must stress that every force majeure clause is different so please read your force majeure clause carefully and do not assume that all force majeure clauses treat the spread of the pandemic and the Government’s advice on social distancing as events/circumstances of force majeure.
Once you have established that the Coronavirus pandemic is an event/circumstance of force majeure that does not necessarily mean that the contract may be terminated or suspended – you need to consider the further questions outlined below.
What is the force majeure event/circumstance that you are relying on?
I mentioned above that under the Association’s template venue hire agreement the Coronavirus pandemic is a circumstance of force majeure. However, when making and communicating a decision to cancel or suspend an event you need to consider carefully if it is the only, or the best, circumstance of force majeure to rely on. As things stand (as at the date of this Article) it is not really the Coronavirus itself that is causing venues to close and events to be cancelled, it is the Government’s advice on Social Distancing which advises everyone to take measures “to reduce social interaction between people in order to reduce the transmission of coronavirus (COVID-19) [including steps to] avoid large gatherings, and gatherings in smaller public spaces such as pubs, cinemas, restaurants, theatres, bars, clubs”. In that sense the event/circumstance of force majeure is the Government’s advice rather than the Coronavirus itself.
My advice would be to hedge your bets by justifying any decision to cancel or suspend an event by reference to: (a) your duty to protect your staff, suppliers and the public; (b); the unexpected spread of the Coronavirus and (c) your need to comply with the Government’s advice on social distancing – the latter two of which are outside of your reasonable control and all of which render your performance of the Agreement impossible or significantly more difficult.
Has the force majeure event/circumstance really caused the cancellation/withdrawal of the event or is there another reason why the event is being cancelled?
Until the Government changed its policy recently, social distancing was not recommended and the public were not discouraged from attending large or small gatherings. In those circumstances it would have been more difficult to rely on the force majeure clause in the Association’s template venue hire agreement to cancel an event because any decision to cancel an event would not have been in consequence of the Government’s advice and would have been a decision within that party’s control taken out of an abundance of caution. However, given that that cautious approach has been vindicated by recent events anyone that did choose to cancel an event during that period might, now in retrospect, have a force majeure defence. There may need to be some High Court Judgments to determine that sort of argument.
Another tricky question arises where performance of a contract is not made impossible or more difficult by the Coronavirus, or the Government’s advice, but it is rendered futile by the Coronavirus or the Government’s advice. Consider this example:
A venue has agreed to host a dinosaur-themed corporate event and contracts with the supplier of inflatable dinosaurs to supply a dozen inflatable dinosaurs. There is a contract between the venue and the supplier and the venue’s only obligation is to take delivery of the inflatable dinosaurs and pay for them. The event is cancelled because of the Coronavirus pandemic and the venue seeks to terminate the inflatable dinosaur contract on the grounds that the Coronavirus is an event of force majeure.
In those circumstances does the Coronavirus pandemic or the Government’s social distancing advice mean that it is impossible, significantly more difficult or meaningless for the venue to take delivery of the inflatable dinosaurs and pay for them? It is certainly not impossible or significantly more difficult for the venue to pay for them. It might be meaningless for the venue to take delivery of the inflatable dinosaurs and therefore pay for them but not all force majeure clauses include the word “meaningless”.
The point here is that you should not assume that if you have a force majeure clause in your contract it will automatically give you the right cancel an event. You need to look at the wording of the clause carefully to ensure that it works for your particular set of facts.
What are the consequences of a force majeure event/circumstance?
Let’s assume that you have established that the Coronavirus pandemic and/or the Government’s social distancing advice is a circumstance of force majeure under your event contract and it does mean that the contract can be terminated – what about deposits already paid or commitments that you have made in reliance on that event going ahead?
Again – there is no single answer to those questions and the answer will require a close reading of the contract. If you use the Association’s template venue hire agreement the consequences are as follows:
- the party seeking to cancel the event (which could be either the venue or the hirer) must notify the other in writing;
- either party has the right to terminate the contract but there is nothing to stop the parties agreeing to a postponement;
- if the event is cancelled the venue must refund any deposit paid by the hirer but is entitled to deduct from the deposit any costs that it has incurred; and
- otherwise neither party has any right to recover losses or costs from the other.
Whilst this article has focussed on event contracts the principles discussed can be applied to any contractual relations which are impacted by the Coronavirus pandemic, including:
- Outsourced catering contracts where the parties might have agreed with each other to keep the doors open during fixed hours of the day;
- Sponsorship contracts where a venue might have agreed to keep an exhibition open to the public for a fixed number of weeks; or
- Exhibition build and installation contracts where the Coronavirus pandemic might result in those exhibitions being delayed, foreshortened or cancelled.