COVID-19 Pandemic: a Case of Force Majeure?
In recent weeks, both provincial and federal governments have been gradually implementing various restrictive measures to limit the spread of COVID-19. Despite the benefits of these measures for public health, they have negative effects on the economy and the stakeholders involved. It’s affecting the fulfillment of several contractual obligations, regardless of the will of the parties. Could the COVID-19 pandemic, through the concept of force majeure, allow a contracting party to be freed from its contractual non-performance?
Force majeure under Quebec law
The Civil Code of Quebec (the “Code”) stipulates that a contracting party may be freed ifrom his contractual liability if it is proven that the non-performance of its obligation results from a force majeure event [1]. The Code defines a force majeure as an unforeseeable and irresistible event. The courts interpreted the criterion of unforeseeability as an event that could not have been predicted or anticipated by a prudent and diligent person at the moment the contract was formed [2]. The scale and rarity of the COVID-19 pandemic lead us to believe that it could meet the criterion of an unforeseeable event.
The second criterion, irresistibility, is defined as an event impossible to prevent for a prudent and diligent person. The Quebec courts specified that irresistibility must be absolute: the impossibility to execute the contractual obligations must be of a general nature and must render the execution impossible for all [3]. The mere fact that the performance of the obligation is more expensive or difficult is not sufficient to fulfill this criterion and invoke force majeure. For example, the increase in the price of materials due to COVID-19 pandemic would probably not allow the supplier of materials to fulfill the criterion of irresistibility.
The burden of proof applicable to force majeure is difficult to meet since it has to make the execution of the obligation impossible for anyone to perform [4]. The determination of force majeure, and more precisely applied to the case of COVID-19, is a question of fact which can only be assessed by the courts on a case by case basis.
Contractual relations: force majeure clause
In addition to the application of the Code, the parties have the contractual freedom to adapt the contract in order to modify the applicability of force majeure. When drafting contracts, it is possible to define force majeure by specifying an enumeration of causes or events (natural disasters, pandemics, social upheavals) that may justify a contractual non-performance. Some contracts will contain clauses allowing the suspension or the postponement of the contractual performance until the event of force majeure ceases while others will prefer to exclude the applicability of force majeure. In this latter case, the parties will remain obliged to comply even if a natural disaster occurs. It is important to draft the contract in order to adapt to the will of the parties, especially with regards to force majeure.
Impossibility of performance: restitution of prestation
When a party is released from his contractual non-performance, by the application of force majeure, the restitution of prestation ensues [5]. To allow one party to enrich itself at the expense of the other would be contrary to business principles. For example, a service provider who cannot render its services will have to return what he received to its contracting partner. The restitution of prestation may be partial, especially when the obligation has been partially performed by the contracting party invoking force majeure.
In conclusion, a case-by-case analysis of the criteria mentioned above is imperative to determine if, in a given case, the COVID-19 pandemic constitutes a force majeure event allowing someone to be relieved from the liability resulting from the contractual non-performance. The various contractual agreements will have to be revised in order to overcome this uncertainty and to adapt to the economic realities applicable to different industries.
By Catherine Demers
[1] Section 1470 C.c.Q.
[2] Vandry c. Quebec Railway, Light, Heat and Power Co. 1916 CSC 50
[3] Guarantee Company of North America c. Machinerie G. Simard inc., 2010 QCCA 952.
[4] La Malbaie (Ville de) c. Entreprises Beau-Voir inc., 2014 QCCA 739.
[5] Sections 1693 and 1694 C.c.Q.