FINDING THE SOLUTION
FINDING THE SOLUTION
June 4, 2020 Litigation and Conflict Resolution
You are party to a contract and the COVID-19 pandemic is preventing you or the other party from performing contractual obligations? This article explains the concept of force majeure and the possibility, in certain cases, of being released from contractual liability when it is impossible to perform contractual obligations due to a superior force event.
Unfortunately, many businesses and contractors who have entered into contracts relating to the operation of their business (e.g., a commercial lease) find themselves unable to meet their obligations (e.g., the payment of their rent) due to the current crisis.
A party unable to perform its obligations under a contract may face a legal action/claim from the other party because of a contractual default.
However, the law provides that a party unable to meet/perform its contractual obligations due to a force majeure event may be released from its liability for non-performance, unless it has undertaken to guarantee the performance of its obligation in an event of force majeure or to compensate the other party for the damage caused by its non-performance/non-fulfilment of its obligations as a result of force majeure.
Exemption from liability due to force majeure
Articles 1470 and 1693 of the Civil Code of Québec set out an exemption on the grounds of force majeure (superior force) as follows:
1470. A person may free himself from his liability for injury caused to another by proving that the injury results from superior force, unless he has undertaken to make reparation for it.
Superior force is an unforeseeable and irresistible event, including external causes with the same characteristics.
1693. Where an obligation can no longer be performed by the debtor, by reason of superior force and before he is in default, the debtor is released from the obligation; he is also released from it, even though he was in default, where the creditor could not, in any case, have benefited from the performance of the obligation by reason of that superior force, unless, in either case, the debtor has expressly assumed the risk of superior force.
The burden of proof of superior force is on the debtor.
Essentially, a party may be released from its obligations if it is unable to perform them as a result force majeure, i.e., the occurrence of an unforeseeable and irresistible event.
Conditions for applying the force majeure criteria
In order to be relieved of its obligation by reason of force majeure, the debtor of the obligation (the party unable to fulfil its obligations under the contract) must demonstrate the application of certain criteria to its particular case:
i. The impossibility to act
The force majeure event must render the performance of the contract absolutely impossible, not just more difficult or more costly. Force majeure cannot conceal a fault of the debtor; it can be successfully invoked only when it is the sole reason for a real impossibility for the debtor to perform his contractual obligations.
The impossibility to act cannot be personal to the debtor; the event must be of a general nature and justify the impossibility of performance for anyone under the same circumstances. The impossibility to act must result from a real inability to fulfil a contractual obligation, absolutely and permanently. The event must be insurmountable as to its effects.
ii. The unforeseeable nature of the event
To qualify as force majeure within the meaning of the law, the event must be unforeseeable at the time of the conclusion of the contract. It must be an event that no reasonable and prudent person in the same circumstances could have anticipated or foreseen. However, this test does not require that the event never occurred. To this extent, it need not be of a particularly exceptional nature.
iii. The irresistible nature of the event
In order to qualify as force majeure within the meaning of the law, the event must also be irresistible: it must be an event that no reasonable and far-sighted person could have avoided under the same circumstances. The debtor must therefore be in a situation where he was genuinely unable to prevent the occurrence of the event, nor could he have taken the necessary prior steps to prevent it and guard against it.
Spotlight on the terms of a contract
It may be that, due to the nature or the express terms of the contract to which you are a party, you cannot rely on an exemption from liability for the impossibility to act by reason of force majeure, even if the above criteria are met.
Indeed, exemption for force majeure provided for by law is not a matter of public order; therefore, your contract could validly provide that a party would nevertheless be liable for the non-performance of its obligations and the damages resulting therefrom despite the occurrence of a force majeure event that could otherwise justify non-performance.
The parties to a contract may also define certain categories of events (wars, pandemics, natural disasters, etc.) that would qualify as force majeure or not.
A thorough analysis of your contract is therefore essential.
However, a clause that specifies the liability of the debtor despite the impossibility of performance in cases of force majeure could be deemed abusive and declared null and void. This would apply, for example, to a consumer contract or a contract of adhesion (i.e. “a contract in which the essential stipulations were imposed or drawn up by one of the parties” [art. 1378 CCQ] and could not be freely negotiated/discussed).
It should be noted that it may be difficult to successfully challenge the validity of clauses requiring performance of obligations despite the occurrence of force majeure in commercial contracts, including commercial leases.
What are specific examples of situations where a party could invoke force majeure?
It is important to note that it is up to the debtor of the obligation, and therefore to the party invoking force majeure to justify its inability to fulfil its contractual obligation, to prove the facts in support of its claims and to demonstrate the application of the exemption on the grounds of force majeure to its particular case. This implies that the debtor must demonstrate the absolute impossibility of performing its obligations, and not that it is more difficult or more costly to fulfil them.
However, before considering whether there is a case of force majeure that allows for relief from performance, the parties must refer to the contract concluded between them to determine if it includes a force majeure clause.
There is nothing to prevent a contract, including in commercial matters, from providing that a party nevertheless undertakes to guarantee the performance of its obligations under the contract (e.g., the payment of its rent) despite the occurrence of a force majeure event, or to compensate the other party for the damage caused by its non-performance arising from such force majeure.
Some contracts will specifically define which events will or will not constitute force majeure and what the consequences of a force majeure event will be on their respective responsibilities. Other contracts will provide that force majeure does not release the parties from their contractual obligations, but suspends exigibility.
Does the COVID-19 pandemic qualify as force majeure?
The COVID-19 pandemic and the containment measures ordered by government authorities since March will only be treated as a force majeure event if they have made it impossible for a party to perform its obligations under a contract. However, each situation requires a case-by-case analysis in light of the circumstances and facts, and according to the express terms of the contract concluded between the parties.
Therefore, an analysis of each contract is required at the outset to determine whether it is possible for a party to claim that the COVID-19 pandemic constitutes a force majeure event that has the effect of releasing it from its obligations.
This bulletin provides general comments on recent developments in the law. It does not constitute and should not viewed as legal advice. No legal action should be taken on the basis of the information contained herein.Back to the list of publications - Litigation and Conflict Resolution