Force Majeure clause in the contract can waive the liability of damages from (i) the impossibility of performing its contractual obligations due to the (ii) unforeseeable intervening event (iii) beyond either party’s control. In addition, the following criteria are required to trigger the Force Majeure provision within the contract:
- There is a substantial causation between the Force Majeure event and the party’s failure to carry out its contractual obligations.
- More onerous or expensive to perform a contract due to the pandemic cannot excuse a responsible party from executing its contractual obligation
- Strict compliance of notice requirement regarding Force Majeure event in the contract
Frustration of Contract
If there is no Force Majeure clause explicitly mentioned in the contract, the common-law doctrine of frustration can be established if the intervening event can meet all of the following criteria:
- The event must have occurred after the formation of the contract;
- The existence of a supervening event cannot be foreseeable or contemplated with no fault of both parties at the time when the contract was entered;
- This event makes performance is radically different from what is undertaken by the contract.
- This event makes a fundamental contractual term incapable of being performed.
- The event must cause a “permanent” disruption – not temporary or transient. The change must totally affect the nature, meaning, purpose, effect and consequences of the contract so far as it concerns either or both parties.
In Ontario, the Frustrated Contract Act, R.S.O. 1990, C. F. 34. governs most of the types of contract frustration as a result of unforeseeable intervening event.
The standard threshold for establishing Frustration is higher than the threshold for establishing Force Majeure, unless it is unfair to hold both parties accountable in this unforeseen event. Whether the contract was discharged for frustration or excused by Force Majeure clause, the breaching party must take reasonable steps to prevent performance rendered impossible, while the contractual party who doesn’t breach the contract also has the duty to mitigate the loss or/and damages. It permits Force Majeure to temporary or partial suspension of contractual obligations, when the frustration of contract can excuse its entirely obligation if proven.
The following indicates different types of cancellations due to the COVID-19 situation. The determination of invoking contractual obligations in response to unforeseen event gives its first priority to Force Majeure provision in the contract. Otherwise, the termination of contractual obligations can be determined by frustration of contract stated as below, or other applicable legislations due to COVID-19.
Airline Flight cancellation:
At the time that you purchase a flight ticket from an airline company, you have already established a contractual relationship with the airline company. In light of the COVID-19 pandemic, there may be flight cancellation due to the closure of airports. Whether or not the reason for flight cancellation is within the airline’s control, the passengers are generally entitled to a full refund. The legal right to a full refund, when it is within the airline’s control, is prescribed in s. 17(2) of the Air Passenger Protection Regulations, stating that passengers are entitled to a refund instead of rebooking, if the alternative travel arrangement offered cannot meet the traveller’s needs. Whenever the cancellation is beyond the airline’s control, the right to a refund is governed by the precedent case laws from the Canadian Transportation Agency and the contract law. Pursuant to s. 3(1) of Frustrated Contracts Act, it states that “the sum paid” can be refunded and any further obligation if exists can be nullified.
The common practice in the airline is to give out future credit and vouchers as a resolution for this unforeseen circumstance. This may not be a bad choice, when you can accommodate to reschedule your travel at a later date. However, when the rescheduling of travelling at a later date doesn’t fit into your original need of itinerary (a material change in traveller's circumstances) in support of justifiable reasons whether they are for personal issue, work-related matter, financial concern and such, you may be better off to ask for a full refund.
Wedding or/and Banquet cancellation:
The Province of Ontario declared an emergency state due to the spread of COVID-19 on March 17, 2020, followed by a restriction imposed on social gathering for no more than 5 people on March 24, 2020. Many wedding events/ceremonies were cancelled or will get cancelled as a result of this social gathering restriction, as well as the mandated shutdown of all non-essential business on March 28, 2020. The contract is considered as frustrated by the non-performance of fundamental contract terms (assuming around 100 guests) without the fault of both parties in this COVID-19 situation.
Notwithstanding of a delay in the wedding ceremony, the chance for all these couples to have the weddings held at a later date are considerably high when thing is back to normal The wedding couples are entitled to a deposit refund or full refund on the basis of s. 3(1) of Frustrated Contract Act, and the party only has the duty to mitigate the loss when accepting a deferred wedding ceremony in the future is possible.
On the other hand, the couple can make the cancellation and ask for a deposit refund or full refund in accordance with s. 96 (1) of the Consumer Protection Act, 2002, by giving notice and explaining reasons for cancellation if there is a material change in the customer's circumstances, which can also be interpreted as performance is radically different from what the contract contemplates. The cancellations applicable to the types of agreements are prescribed in the s. 95 of the Consumer Protection Act, 2002 . For example, the original attendance of 100 guests cannot make possible (probably reduced to 50 people) because of your guests’ busy schedules, if the wedding has to be rescheduled at a later date.
A recent reduction in hours or salaries executed by the business, resulted from the mandated shutdown in the COVID outbreak, may lead to a constructive dismissal claim as a result of the fundamental breach of employment prior to this pandemic situation. The current impact of such actions is minimized through CREB Benefits offered by the government, and the implementation of appropriate approaches have to be justified and quantified by balancing both employees’ and employer’s interests into its consideration.
Another example of the soon-to-start employment may be discharged by frustration due to its failure of performing the contractual obligations in this COVID-19 situation, given that this approach has already been weighted in both parties’ interests, not merely just economic hardship.
A tenant may discover that the rental unit that he is going to move into is undertaking the sterilization of COVID-19 contamination on the same floor and certain common areas of the building. It may not be instantly considered as a frustration of contract, if the situation is temporary in addition to the relevant work done within a reasonable period of time, whereas the living condition of rental unit is in compliance with s. 20 (1) of the Residential Tenancies Act, 2006 under “a good state of repair and fit for habitation and for complying with health, safety, housing and maintenance standards”. Of course, it will lead to a different scenario, if the relevant work is done beyond a reasonable period of time.
When the stoppage of renovation project is triggered by COVID-19, the customer can cancel the project pursuant to s. 26(1) of the Consumer Protection Act, 2002, for a deposit refund, if this “future performance contract” hasn’t commenced within 30 days from the start date specified in the agreement.
However, if there is no choice to defer the continued renovation work due to COVID-19, the customer can also cancel the agreement on the basis of s. 95 of the Consumer Protection Act, 2002. However, COVID-19 should have a direct impact on this cancellation – rather than other “hindering” factors – as a result of frustration of contract due to a material change in the customer’s circumstances.
A refund to the customer may be granted for all money in the remaining balance of the contract or all money after the incurred expense is deducted for the partial service rendered, despite the Frustrated Contracts Act has expressed that an entire amount paid can be possibly recoverable as well.
Disclaimer: This information is not intended to be construed as a legal advice, but strictly for your information only. Please contact Trustworthy Legal Services for your independent legal advice in your particular situation. The first consultation is required prior to the retainer of your case.
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