In our March 16, 2020, Blakes Bulletin: COVID-19 and Your Contracts, we considered how the COVID-19 pandemic will impact contractual relations in Canada. We focused on contractual force majeure clauses as well as the common law doctrine of frustration. We also mentioned that in Quebec, force majeure is also part of the Civil Code of Quebec, such that its application does not always require a contractual foothold.
This bulletin specifically addresses how the force majeure provisions contained in the Civil Code of Quebec may serve to extinguish or suspend parties’ contractual obligations under Quebec law.
COVID-19 IN QUEBEC
Between March 13 and March 21, the Quebec government issued seven orders declaring a health emergency and imposing severe restrictions on a broad range of economic and leisure activities in the province. Schools and daycares were the first to be shut down. Recreational facilities, bars, clubs, spas and buffet-style restaurants followed. Activities at provincial courts were almost completely suspended, and public attendance was banned. The government then prohibited “indoor and outdoor gatherings” of any kind, except those specifically permitted, and shut down all shopping centres, other than grocery stores, pharmacies, liquor stores and stores that have direct outdoor access. On March 23, the government went a step further and closed all businesses, except essential services until April 13.
Considering the nature and scope of these restrictions, there is no question that most, if not all, businesses will be severely impacted.
Contracting parties will, therefore, be wise to consider whether the COVID-19 outbreak, and the measures imposed to contain it, constitute a force majeure event for the purposes of the Civil Code of Quebec and, if so, how this will impact their obligations.
FORCE MAJEURE AND THE CIVIL CODE OF QUEBEC
In Blakes Bulletin: COVID-19 and Your Contracts, we advised that “[i]n the common law jurisdictions of Canada […] force majeure is a creature of contract. It can be invoked only where provided for in an agreement, and its application and effect are determined through contractual interpretation.” In Quebec, two potential scenarios must be considered:
If the parties to a contract included a force majeure clause in the applicable agreement(s), the clause will prevail, and its application and effect will be determined through contractual interpretation, much like in the common law jurisdictions. The analysis of such clauses set forth in our prior bulletin will, therefore, apply to Quebec contracts, subject to certain limitations and exceptions.
If the contract is silent on the issue of force majeure, the Civil Code of Quebec provisions shall apply, granting the parties a legal right to assert that their contractual obligations have been extinguished or suspended, provided the applicable test has been met.
Pursuant to the Civil Code of Quebec, in order to establish the existence of a force majeure event, the party invoking it must demonstrate that the event was unforeseeable at the time the obligation(s) were subscribed. The event must also be shown to be irresistible, meaning that it is entirely beyond their control.
The force majeure event must also render the performance of the relevant obligation(s) impossible, and not simply more difficult or expensive. If the force majeure event renders performance permanently impossible, the obligation may be extinguished. If it only renders performance temporarily impossible, the obligation is merely suspended.
To the extent the test for force majeure is met, the invoking party not only may be relieved (permanently or temporarily) of its duty to perform, but also will be released from the duty to pay compensatory damages. Although the other contracting party(ies) shall generally also be excused from performing their own obligations, they will almost certainly be prejudiced and want to consider their own options with a view to mitigating their damages.
COVID-19 AND FORCE MAJEURE
In order to determine whether a party can invoke force majeure, it is important to consider:
When the obligation was subscribed: If the COVID-19 outbreak was already underway when the parties signed the contract, it will be necessary to consider how far it had progressed and gauge its expected impact at the relevant time in order to determine whether the event was unforeseeable.
Whether the event was irresistible: This is likely the least relevant consideration in the present circumstances. Nevertheless, there could be some question as to whether the party could have sheltered itself fully or partially from the effects of COVID-19 and the government-imposed measures.
Whether performance is impossible: This question will be easier to resolve for those businesses expressly ordered to close. For businesses impacted more indirectly, this will be the key consideration. It will be necessary to look at both the manner in which the business has been impacted and the nature of the obligation(s) owed in order to determine whether measures could have been taken that would have permitted the obligation(s) to be fulfilled, albeit at greater cost.
There is absolutely no question that the COVID-19 outbreak and the measures implemented to contain it will have a severe and lasting impact on companies doing business in Quebec. That said, companies are required to provide a detailed analysis of their business activities and how fulfilment of their contractual obligations will be impacted in order to determine whether such obligations may be extinguished or suspended. This analysis must be constantly updated as the situation continues to evolve. Moreover, many questions will arise as to how the impact of COVID-19 must be apportioned among the various contracting parties, each of whom shall be prejudiced by the current situation.
For further information, please reach out to a member of our Litigation & Dispute Resolution group or your usual Blakes contact at any time.
Please visit our COVID-19 Resource Centre to learn more about how COVID-19 may impact your business.
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