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Corporate & Commercial

How does COVID-19 affect contractual obligations and liability?

Unfortunately, there is no uniform answer. As with many things in law, it depends on the circumstances and the language of the contract itself.

What does the contract say?

Many contracts, particularly those that were well-drafted by a lawyer, will have language that specifically deals with what happens when external events impact one of the party’s ability to fulfill their duties. Generally, these are termed “Force Majeure” clauses, but they could be under headings such as addressing delays, termination or delivery/performance timelines.

Such clauses are typically drafted to release one or both parties from their obligation to provide services or make payments due to external, unforeseen circumstances that are not the fault of either party.

Depending on how they’re written, government-mandated shutdowns or restrictions impacting the business should be sufficient to trigger these clauses.

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COVID-19 has put a tremendous strain on our court system. Most people don’t have the time or money to litigate a contract dispute.

In the current climate, it will frequently be up to the parties themselves to decide how to address the difficulties the pandemic has created. This may include formal written solutions like change orders altering fulfillment or payment timelines in construction contracts, rent deferment agreements for commercial and residential leases, or termination and mutual release where it makes sense for the parties to simply part ways.

Or more informally, parties may agree to reschedule or postpone service dates (e.g. catering, photography, event-planning services, wedding, etc.)

To date, global pandemics have not been truly contemplated in our court system.

If the contract doesn’t specifically address what happens in unforeseen circumstances, then the parties must rely on the guidance of the common law – the collection of precedents set down by the various courts in similar circumstances. Unfortunately, there are few cases that specifically address global pandemics or the government-mandated shutdown of entire industries.

That being said, the common law is constantly evolving, and it remains to be seen how the courts will react once the deluge of COVID-related cases begins to flood the courts.