Navigating a Canceled Event Under Covid-19
The COVID-19 pandemic has left many events across the country, such as weddings and conferences, cancelled or indefinitely postponed. In the midst of all the uncertainty that surrounds the events industry during these trying times, many customers and vendors are wondering if they have any financial responsibility for COVID-19 related cancelations. The answer, like most legal answers, is that it depends on the terms of the contract and surrounding facts. There are three considerations that will likely play a role in your obligations to vendors if your event was cancelled: force majeure, impossibility of performance, and frustration of purpose.
The first step is to determine if the contract contains a force majeure clause. A force majeure clause alleviates one or both of the parties from some or all obligations to perform under a contract when an unforeseen event beyond the parties’ control prevents or delays performance. This includes both acts of nature, such as floods and hurricanes, and acts of people such as riots, strikes, or war.
Force majeure clauses usually follow a formula—they list a series of horrific events that, through the fault of neither party, make performance of the contract impossible. While force majeure clauses follow a pattern, they are not created equal, and courts tend to interpret force majeure clauses very narrowly against the party seeking to avoid performance. A force majeure clause that explicitly excuses performance in the event of pandemic or contains broad catch-all language such as “any other event beyond the anticipation or control of the parties” will excuse performance by either party due to the COVID-19 pandemic. Thus, if a wedding was canceled due to the pandemic and the contract contains a force majeure clause, then the customer and vendor can walk away from the contract.
In the event the contract does not contain a force majeure provision, a party’s performance may be excused by two other related doctrines: the doctrine of impossibility of performance and frustration of purpose.
Impossibility of Performance and Frustration of Purpose
Impossibility of performance is a defense to nonperformance and refers to situations where the purpose for which the contract was made has become impossible to perform. Frustration of purpose applies when performance under a contract remains possible, but some unforeseeable event destroys the contract’s value.
When applying both doctrines, courts look to whether the contingency at issue was foreseeable when the parties entered into the contract. If the risk was foreseeable and could have been the subject of an express contractual agreement, courts are hesitant to invoke either doctrine to excuse nonperformance. For this reason, if a party entered into a contract after March 11, 2020, when the World Health Organization characterized the outbreak of COVID-19 as a pandemic, both doctrines are unlikely to be available to avoid performance under the contract.
While travel restrictions and social gathering rules have made all social events more difficult during the coronavirus pandemic, this does not mean that performance will be excused under either of these doctrines. If performance has been made more difficult or expensive, it does not necessarily mean it is impossible to perform, or the purpose of the contract has been frustrated. It is also not enough that the subject matter of the contract is temporarily unavailable, even if that temporary unavailability might last for months or even years. This, of course, depends on the nature of the event – a wedding can be rescheduled, but an event that is more time-sensitive, like a baby shower, cannot be postponed for months.
The invocation of a force majeure clause or common law excuse of impossibility of performance or frustration of purpose to avoid performance of a contractual obligation creates a risk to the party breaking the contract. The unpleasant reality is that after the dust settles and the dangers of the COVID-19 pandemic (hopefully) have subsided, courts will be dealing with the legal fallout from the related event cancellations for years to come. As such, to avoid such uncertainty, it advisable for parties to work together on mutually beneficial solutions and/or structure their contract with coronavirus related contingencies.