Toronto Lawyers for COVID-19-Related Force Majeure Clause Litigation
The global spread of COVID-19 has caused mass disruption to daily life and economic hardship for many Canadians in a short period of time. As a result, individuals and businesses across the province are financially pressed and may find themselves unable to fulfill their obligations under contracts they entered into before the global pandemic became widely known. Unfortunately, the COVID-19 pandemic is likely to result in an unusually high number of contract disputes and insurance matters stemming from the business interruption currently resulting from government orders at both the provincial and federal level. All of this can be expected to lead to significant legal challenges for many businesses going forward.
One potential avenue that may provide relief for those unable to perform under an existing contract will be the contract’s “force majeure” clause if it has one. In short, these clauses, also referred to as an “Act of God clause”, allow a party to escape liability for being unable to perform all or part of a contract due to events beyond their control. While force majeure clauses are rarely invoked, they may come into play much more frequently given the current and unexpected impact of COVID-19.
What is a Force Majeure or “Act of God” Clause & When is it Used?
As mentioned above, these clauses can safeguard a contracting party from penalization and liability when that party is unable to carry out its duties under the contract in full or in part. The clauses may differ significantly from contract to contract, with some being vague and open to interpretation while others are more specific and point to a finite list of events that can trigger the clause. As a result, the enforceability and applicability of a force majeure clause with respect to the pandemic will depend on the wording specified in each individual contract.
For contracts that do not name specific triggering events, parties can also turn to the Supreme Court of Canada (SCC) for clarification. The SCC defined the term “act of God” in the 1975 decision Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp and Paper Company Limited as:
[A] supervening, sometimes supernatural, event, beyond control of either party, [that] makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill.
Depending on the timing of a contract’s execution, it could be argued that this definition should extend to unforeseen challenges presented by the pandemic, including travel restrictions, forced shutdowns and mandatory quarantines.
Force majeure clauses are not commonly invoked due to the rarity of the events that typically trigger them. Generally, before attempting to invoke an existing force majeure clause, a party should consider the following three questions:
How are triggering events defined in the contract?
What level of impact do those events need to have on their business to trigger the clause?
What effect should invoking the clause have on the parties’ contractual obligations?
If successfully argued, a force majeure clause may result in an order that a party is not bound to the original obligations set out in the contract, in whole or in part.
What if a Contract Does Not Contain a Force Majeure Clause?
Even when there is no force majeure clause set out in a contract, the common-law doctrine of frustration of contract may be invoked by parties who claim they are unable to perform their contractual obligations. In order to successfully establish that a contract has been frustrated, a party must be able to demonstrate that it would be impossible to fulfill its obligations under the circumstances. It is not sufficient to simply point to additional difficulty or strain, but rather the situation must completely prohibit a party from performing all or part of their obligations. Additionally, and as with a force majeure clause, the circumstances in question must be unforeseen and not the fault of either party to the contract.
For Exceptional Representation in Coronavirus-Based Contract Disputes and Related Litigation, Contact Milosevic Fiske LLP
Many business owners across Ontario may be looking ahead and anticipating potential issues with fulfilling contracts or may already be finding themselves unable to do so. Even if the issues are only hypothetical at the moment, preparation and a clear understanding of one’s obligations are essential to protect a business’s interests long-term. Seeking the advice of an experienced lawyer to provide insight into a party’s obligations under an existing contract now could save a great deal of time and money down the road.
If you are involved in litigation resulting from the effects of COVID-19 on your business or expect to be, the exceptionally skilled corporate litigation lawyers at Milosevic Fiske LLP in Toronto can help. Over the years, our team of lawyers has successfully fought for our clients’ rights and our impressive track record speaks for itself. Please contact us by calling 416-916-1387 or connect online for a consultation.