COVID-19 has forced events ranging from weddings to concerts to sports matches to be postponed, rescheduled or canceled due to COVID-19. In addition to dealing with the logistical nightmare posed by the pandemic-related cancellations, many event organizers and other service providers are also dealing with potential legal liability.
When responding to breach-of-contract lawsuits resulting from coronavirus-caused cancellations, the terms of the agreement generally control. While the majority of contracts do not address COVID-19, there are provisions that may apply. Businesses may also be able to rely on common law remedies, such as impracticability and frustration of purpose.
If contracts have refund or cancellation clauses, the terms of such provisions will likely control. It is important to review such provisions carefully to determine whether cancelling the event constitutes a breach/material breach and what remedies are required. It is also important to determine how and when notice must be provided.
Contracts may also provide a defense to breach-of-contract lawsuits resulting from coronavirus-caused cancellations. A force majeure clause, meaning “superior force” in French, relieves the parties from performing their duties under the contract in certain circumstances. The circumstances include those deemed beyond their control that make performance inadvisable, commercially impracticable, illegal, or impossible. Examples include natural disasters like hurricanes, floods, earthquakes, and other “acts of God.” However, they also apply to manmade disasters, such as war, terrorism, civil disorder, supply shortages, and labor strikes.
As with any contract provision, the specific terms will vary, so it’s important to review the force majeure provision in your contract to determine what is covered. For example, some provisions only excuse performance when it is impossible, rather than impractical (untimely, expensive, etc.). Other provisions will only list certain circumstances that excuse performance, rather than including a catchall such as “other unforeseeable events beyond the control of the parties.”
The terms of the contract will likely dictate the specific notice requirements that may be required, as well as the timeline for providing notification. Businesses must also carefully review agreements to determine if either party is subject to mitigation or allocation requirements
Common Law Remedies
In the absence of a force majeure provision, businesses may look to common law contractual remedies, such as impracticability and frustration of purpose. Frustration of purpose applies when performance of a contract becomes worthless to a contracting party. New Jersey and New York have adopted the (Second) Restatement of Contract’s definition, under which the defense has three required elements: (1) “the purpose that is frustrated must have been a principal purpose of that party in making the contract”; (2) “the frustration must be substantial”; and (3) “the non-occurrence of the frustrating event must have been a basic assumption on which the contract was made.”
Impossibility—or impracticability— of performance applies when the actual performance of the contract is impossible. Under the Restatement, a contractual obligation can be discharged when “a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made.” Notably, where one party to a contract is excused from performance as a result of an unforeseen event that makes performance impracticable, the other party is also generally excused from performance.
With regard to both impracticability and frustration of purpose, a party is still obligated to make reasonable efforts to overcome the impediment to performance. Moreover, if impracticability of performance or frustration of purpose is only temporary, the duty to perform may only be suspended temporarily. When the impracticability or frustration ceases to exist, the party may then again be required to perform under the contract.
Some state statutes require businesses to issue refunds under certain circumstances. For instance, New York law (NY ART & CULT AFF § 23.08(3)(ii-iii)) provides that ticket purchasers are entitled to a refund if the event is canceled or rescheduled. However, refunds are not required when the performance of such event was rescheduled due to an Act of God, war, riot or other catastrophe … and “the advance ticket purchaser was given the right to use his or her ticket for such rescheduled performance or the right to exchange such ticket for a ticket comparable in price and location to another, similar event” or “the back of the ticket conspicuously states that if the performance is cancelled or rescheduled, the ticket distributor shall not be required to refund the ticket price if the ticket purchaser is given the right, within twelve months of the originally scheduled date of the performance, to attend a rescheduled performance of the same event or to exchange such ticket for a ticket comparable in price and location to another, similar event.”
Businesses should also review their insurance policies to determine if losses related to event cancellations may be covered. If so, the insurance proceeds may lessen the financial blow associated with cancellations, refunds, rescheduling, etc.
Best Practices for Managing COVID-19 Event Cancellations
As with other legal disputes, the parties should seek to avoid the time and expense of litigation. When facing an event cancellation, the parties should work to devise a mutually-agreeable resolution whenever possible. Here are a few tips for reducing the risk of liability:
- When facing event disruptions, review all relevant contracts to identify applicable clauses (i.e. cancellation, refund or force majeure clauses) and assess what remedies, notice procedures, and other requirements may apply;
- Consider alternatives to cancellation and postponement, such as holding the event outside or reducing the number of attendees;
- If events must be cancelled, document all efforts made to hold the event as scheduled and all factors impeding performance; and
- When altering the terms of the original contract, i.e. postponing or rescheduling the event, document the parties’ new agreement in writing via a fully-executed contract amendment.
Even though restrictions are slowly being lifted, event organizers and other businesses may continue to feel the fallout of the COVID-19 pandemic. To reduce risks of a costly lawsuit, it is advisable to be proactive in reviewing your existing contracts to determine your legal obligations should events be cancelled or postponed. Going forward, it is also wise to consider amending force majeure provisions to expressly include viruses, epidemics, and pandemics (or to exclude them).
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.