Breach of contract due to the COVID-19 pandemic: a case of force majeure?

The outbreak of the COVID-19 pandemic has significantly compromised the ability of many businesses and individuals to fulfill their existing contractual obligations. In some cases, those failing to carry out their obligations due to the pandemic – or the measures taken by authorities to contain it – could avoid civil liability on the grounds of a superior force or force majeure.

A potential case of force majeure

Under the Civil Code of Quebec, a “superior force”, or “force majeure” releases parties from their contractual obligations, such a party failing to fulfill its obligations for that reason is freed from liability, unless the parties had otherwise agreed (Articles 1470 and 1693 C.C.Q.).

At civil law, a force majeure is an event that is both “unforeseeable” and “irresistible”, i.e. an event that is beyond the control of the parties, that could not be foreseen or avoided, and which has the effect of preventing one of them from fulfilling his or her obligations.

The COVID-19 pandemic is an event of such magnitude and rareness that it could likely be described as “unforeseeable”. It should be noted, however, that in order for there to be force majeure, the event must have unforeseeable at the time the contract was signed. Therefore, the pandemic or the measures taken by public authorities to contain it would not be unforeseeable for parties to contracts signed after the beginning of the crisis.

Importantly, an individualized analysis is required to determine whether, in a given situation, the pandemic represents an “irresistible” event, i.e. (1) one that could not be averted; and (2) one that renders the fulfillment of the contract absolutely impossible.

For the COVID-19 pandemic to be a force majeure, the party must have been unable to avoid its consequences, even with due care and diligence. However, this will not always be the case. Indeed, in certain circumstances, the impact of the COVID-19 pandemic on a party’s ability to fulfill its contract could have been avoided. For example, a person who chose to travel to Italy after the government had already strongly advised against – or prohibited it, would not likely be able to invoke force majeure for subsequently being placed in quarantine.

Furthermore, the COVID-19 pandemic will constitute force majeure if it makes the fulfillment of a contract absolutely impossible. It is not enough to show that the fulfillment of the contract has become much more difficult or expensive. If it remains possible, albeit much more difficult for the party to complete the contract, that party will not be able to escape his or her civil liability on the grounds of force majeure.

Indeed, the occurrence of an unforeseen change in circumstances making the performance of a contract more onerous, but not impossible, would not result in a force majeure, rather engaging the law doctrine of unforeseeability (“imprévision”), which has been rejected under Quebec law.¹

In short, a case-by-case analysis is required to determine whether the COVID-19 pandemic, or the measures taken by the government to contain it, could constitute a case of force majeure that releases the parties from their contractual obligations.

In all cases, it is necessary to carefully analyze the contract to ascertain whether any clauses alter or attenuate regime of force majeure existing under the Civil Code.

The force majeure clause

A contract may contain “force majeure clauses” that define which events constitute a case of force majeure and/or dictate the consequences of a force majeure on the parties’ respective obligations.

These clauses often include an enumeration (exhaustive or not) of the events that will (or will not) constitute force majeure (labour disputes, wars, terrorist attacks, epidemics, etc.). Such clauses may either extend or restrict the concept of force majeure, as defined at civil law.

Force majeure clauses can also alter the effects of a force majeure event (whether defined or not) on the parties’ respective obligations. For example, the clause may provide that one party will be required to compensate the other for any failure to fulfill its obligations, even as a result of force majeure. Or, it may provide that force majeure does not release a party from its obligations, but suspends its exigibility.

It should also be noted that force majeure clauses often include a notice procedure that must be followed in order to enable the debtor to invoke the benefit of the clause.

A careful analysis of each contract is required to determine whether it could allow a party to argue that the COVID-19 pandemic constitutes an event of force majeure that has the effect of releasing it from its obligations.

Risk management through the inclusion of a force majeure clause

In view of the ongoing pandemic, parties to a contract should carefully review the clauses relating to force majeure in order to determine the extent of their rights and obligations in the current circumstances.

When drafting new agreements, parties could consider negotiating force majeure clauses adapted to this new reality, which could potentially go as far as contractually determining who assumes the risk of non-performance of a contract related to the COVID-19 pandemic (or the measures that public authorities may take to contain it).