What are the effects if you have to cancel an event due to the Coronavirus?
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.
What does the contract say?
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.
What is force majeure?
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:
- Is “epidemic” or “pandemic” specifically covered by the clause?
- Has there been a government decision or action preventing performance that meets the political interference language commonly used in such clauses? For example, the government putting the country into “lockdown” and banning mass public gatherings.
- If not, is it the type of event that falls under general “beyond the reasonable control of the affected party” standard wording? In my view Covid-19 would generally speaking fall into this “catch all” category.
Even if covered, other requirements may still need to be satisfied to constitute force majeure:
- Was coronavirus reasonably foreseeable? This will be more relevant to more recent and future contracts now that the effects of the pandemic are inescapable and we don’t know how long the effects will be felt. Certainly contracts for future events later this year/next year would want to agree how risks around the outbreak and potential cancellations should be allocated.
- The party seeking to rely on force majeure must usually have to establish causation – that it is the coronavirus outbreak which has prevented or hindered them from performance of the contract (as opposed to some other issue).
- The party claiming force majeure relief is usually under a duty to show that it has taken reasonable steps to mitigate/avoid the effects of the epidemic. Could the event in question be postponed rather than cancelled for example? Could it be held virtually?
- Prompt notification to the other party is also often a condition precedent to obtaining relief under the force majeure provision.
What are the consequences of establishing 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:
- they only operate in circumstances that make it impossible or impractical for the business to complete the contract;
- the customer’s attention is drawn to the risk of cancellation, if it is a real possibility; and
- they clearly and specifically describe the circumstances that the clause is intended to cover, using plain and intelligible language. For example, using the words “events outside your control” instead of the legal term – force majeure. Also, there should be no listing of matters that could be within the business’ control, as force majeure events, such as industrial disputes with the business’ own staff or equipment breakdown.
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.
Final points to consider
- Do you have specific event cancellation or business interruption insurance that may cover any losses suffered? The specific wording will need to be to be reviewed carefully.
- How are you going to manage the reputational risk associated with cancelling or postponing a key event. How you communicate with your customers in these unprecedented circumstances is going to be key.
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.