All types of events, from the biggest international concerts and conferences to the smallest community gatherings have been cancelled or postponed to prevent the spread of Coronavirus.
The impact of such cancellations is wide ranging and may result in significant losses for many businesses, including organisers, hosts, participants, exhibiters, sponsors, media firms and numerous other businesses that would otherwise stand to benefit from the event related tourism. Clients have been getting in touch as key events in their industry are cancelled or postponed and asking where they stand legally particularly, in terms of money already paid out. This could be as the host of an event or as an attendee.
The first port of call (as always) are the contract terms. Does the contract specifically deal with the possibility of the event being cancelled/postponed and what the repercussions of this would be on each party’s liability to the other?
In the absence of express cancellation provisions, English law contracts that require ongoing performance are, in principle, absolute; that is, a party affected by coronavirus is required to perform its obligations and will be potentially liable to the other party if it fails to do so. The two main exceptions to this are force majeure and frustration.
A force majeure clause is normally used to describe a contractual term by which one or both of the parties is entitled to suspend performance of its affected obligations or to claim an extension of time for performance, following a specified event beyond its reasonable control. It may also entitle termination of the contract, usually if the event exceeds a specified time. However, force majeure clauses differ, some are short form and some are long and detailed, so the specific clause in question will need careful review. However key points to consider are:
Even if covered, other requirements may still need to be satisfied to constitute force majeure:
In most contracts this will lead to relief from performance of contractual obligations and an extension of time to target dates. Commonly, parties bear their own costs arising from any force majeure delay. Extended periods of force majeure can lead to a right for one or more parties to terminate the contract. But what if you are a consumer facing business?
All the above issues will apply equally to consumer facing businesses which are forced to cancel or postpone events such as concerts, performances and conferences. However, consumer protection legislation will add an extra layer of complexity, compared to business to business contracts. Whether or not you can use force majeure to side step liability will depend on whether this would be considered fair under the Consumer Rights Act 2015, the key piece of legislation in the UK governing consumer rights. Force majeure clauses are more likely to be meet the requirements of fairness if:
Hanging onto all pre-paid ticket money in circumstances where the event did not go ahead, is likely to be viewed as unfair. It would normally be advisable for businesses cancelling events in reliance on force majeure (particularly in a consumer facing context) to be prepared to issue a full or partial refund to their customers.
In the absence of a force majeure clause, parties might have recourse to the common law principle of frustration. This provides that a party is discharged from its contractual obligations if a change in circumstances makes it physically or commercially impossible to perform the contract, or would render the performance radically different. However, this test is a very high bar and the courts have confirmed that the circumstances where it can be invoked are narrow. Undoubtedly the bar will be reached in some cases arises from coronavirus – for example, where a state-imposed lockdown prevents performance. If frustration applies the remedy is recovery of monies paid under the contract, subject to an allowance (at the court’s discretion) for expenses incurred by the other party.
To discuss any of the issues raised in this blog, please contact Emily Sadler.
Our page “Coronavirus – Legal advice and guidance” has further information relating to the effects of the coronavirus pandemic on businesses.