The coronavirus (COVID-19) pandemic is significantly impacting the construction industry in British Columbia. But is it enough to legally justify changing or terminating your contractual obligations?
Business is becoming more difficult. Some provinces have shut down all non-essential businesses. British Columbia may soon follow. Even if the construction industry is exempt from being shut down like Ontario, construction projects face significant challenges. Problems with manpower, hygiene facilities, supply chains, and social/physical distancing could delay, halt, or prevent construction.
This article discusses two legal options that contractors may have to delay, alter, or end their contractual obligations.
- The Contract – Force Majeure Clauses
If you have a written contract, review it carefully – preferably with a lawyer. There are several places to look.
First, there may be a basket provision relating to “circumstances beyond the party’s control”. This may allow a party to excuse, delay, or terminate certain contractual obligations, depending on the circumstances and the contract.
Second, many contracts contain “force majeure” clauses. This is a French term meaning “superior force”. These clauses may give a party the right to delay or terminate the contract if certain events occur that are outside of their control. Such events that are typically listed in such clauses include fire, earthquake, war, lock-outs, catastrophe, or an Act of God or force majeure. Some contracts include “epidemic or quarantine” (and new contracts should include such language). More commonly, it is arguable whether a pandemic is an Act of God or force majeure.
In general, a party seeking to rely on a force majeure clause must show that the pandemic (1) makes performing the contract impossible or commercially impractical, (2) is outside their control, and most likely (3) they have acted with diligence to avoid it. A force majeure has been defined by the Supreme Court of Canada as:
….when a supervening, sometimes supernatural, event, beyond control of either party, makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill.
Whether a force majeure clause can be invoked by this pandemic depends on the wording of the contract and circumstances. For example, if the force majeure clause lists only acts of nature, it is possible that the clause does not apply to human acts. In addition, some clauses contain strict requirements to be invoked, like giving prompt notice in writing after the event occurs.
If the contract does not allow a party to delay, alter, or terminate their obligations because of the pandemic, the common law principle of frustration might apply to terminate the contract.
“Frustration” is a legal term of art that relieves parties of their obligations under a contract because of a supervening event that happens for which neither party is at fault. This event must radically change the nature of the obligations in the contract to make it unjust to hold the parties to their obligations. Mere hardship or inconvenience is not enough. The pandemic must be an unforeseen event that prevents the performance of a contract.
Like force majeure clauses, a court will look at the nature of the contract and consider all of the surrounding the circumstances.
Either frustration or force majeure clauses may legally justify the delay, alteration, or termination of a contract. But one cannot automatically assume that either of these legal principles will relieve someone of their contract. If one is found to have relied on them improperly, they could be monetarily liable for breach of contract. Since frustration and force majeure clauses are very fact-specific, it is best to contact a lawyer if you would like to know if either apply to you.
This article was written by Jonathan Maryniuk, who practices construction law with the law firm of Kuhn LLP. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have any questions or comments about this case or other construction law matters, please contact us at 604-864-8877 (Abbotsford) or 604-684-8668 (Vancouver), or reach the author at jmaryniuk [at] kuhnco.net via email.