A force majeure clause excuses a contracting party from performing its contractual obligations where an unexpected supervening event, beyond the control of either party, adversely impacts performance. Under Canadian common law, force majeure clauses can only be relied on if they are explicitly included in a contract. They are interpreted narrowly, and will only apply where the language in the clause clearly captures the triggering event.
In many cases, the contract will list specific events that will be deemed to trigger the clause. For example, language evoking epidemics, pandemics, and other terms for widespread disease are the most likely to apply to disruptions created by COVID-19. Language describing government actions that prevent performance would also be relevant, while the catch-all language sometimes included in such clauses might also be sufficient. When faced with such an argument, the first step is always to determine whether the contract includes a force majeure clause that is broad enough to cover the triggering event.
Even if the COVID-19 pandemic falls within the contract's definition of force majeure, this does not end the inquiry. These factors must also be considered:
a) There must be a causal link. The party relying on the clause must still establish a substantial causal link between the force majeure event and the party's failure to perform its contractual obligations.
The force majeure clause itself typically sets out the degree to which the event must impact performance for the clause to be triggered. This can vary from a higher standard requiring performance to be prevented by the triggering event to a lower standard requiring only that performance be hindered or delayed.
Where the degree of impact is not specified in the agreement, the higher threshold is typically applied such that the triggering event must make it virtually impossible to perform the contractual obligation.
b) The fact that a contract has become unprofitable or uneconomical is not sufficient. A triggering event that makes performance more expensive or unprofitable will not excuse a contracting party from contractual performance. If the obligation could be fulfilled at a greater cost, then a force majeure clause will not excuse a breach.
c) All notice requirements must be met. Many force majeure provisions contain strict notice requirements. Parties opposing the use of a force majeure clause should check whether the notice requirements in the contract were satisfied.
Finally, the effect of a force majeure clause will depend on the terms of the contract. Often, a force majeure clause will only suspend or partially excuse a party's performance of a contractual obligation for the duration of the force majeure event, but not permit the termination of the contract itself. Other force majeure clauses will allow a party to terminate the contract if the triggering event lasts beyond a set amount of time.
If the contract does not contain a force majeure clause, or if the language of the clause does not capture the disruption caused by COVID-19, the party seeking to escape its contractual obligations will likely turn to the doctrine of frustration.