March 2021 - Covid, Contracts & Cancellation

Over the past 12 months ITC has dealt with many enquiries from members about whether it is possible to “CoVid” proof contracts against eventualities such as venue closure or illness/self-isolation affecting performers. The short answer is that this is not easy. There are, however, ways to negotiate the best possible outcome for the parties to a contract if CoVid threatens performance.

As a general rule, obligations set out in a contract must be carried out, even if a change in circumstances has made performance more difficult, expensive or even impossible. There are, however, some exceptions to this general principle: frustration, force majeure and agreement to vary a contract.

Frustration of contract

Frustration of contract is not enshrined in legislation, it is a “doctrine” that a court will need to decide on if there is a dispute. Frustration is when an unpredictable event means that a contract is impossible to perform.

For frustration to apply there must be a ‘frustrating event’ that:

• Occurs after the contract has been formed.
• Is so fundamental that it strikes at the root of the contract.
• Is entirely beyond what was contemplated by the parties when they entered the contract.
• Is not due to the fault of either party.
• Renders further performance impossible, illegal or makes it radically different from that contemplated by the parties at the time of the contract.

Frustration generally releases both parties from their remaining obligations under the contract, although it can be possible to recover money already paid under a contract that has been frustrated (deposits, for example).

The big question with CoVid cancellations is, of course, whether they can be considered as having been beyond the contemplation of the parties when they entered into the contract. Can a contract made during the pandemic be frustrated by it?

Force Majeure

Having a Force Majeure clause, which spells out what happens if the parties are prevented from performing their obligations by specific events that are beyond their control, can be more helpful. The key point, if a Force Majeure clause is ever needed, is what events the clauses define as “Force Majeure events”. This will be a matter for negotiation. To be sure that the CoVid epidemic is included within the definition of Force Majeure, make sure that there is reference to epidemic, pandemic or disease, and Acts of parliament or political interference, in addition to general reference to circumstances beyond the parties’ control. CoVid may no longer be considered “unforeseeable” but its impact and ensuing legislation are still uncertain enough to be covered if you can agree a Force Majeure clause that is inclusive enough.

Make sure that a clause also sets out how and when the parties to a contract should notify the other that they believe the Force Majeure clause does apply, which means there will be delay or suspension of performance of the contract.

Varying the contract

It is always possible to vary a contract by negotiation. However, the uncertainty of the current pandemic situation and the different interests of the parties may not always make this easy.

Key issues when renegotiating a contract because of CoVid cancellations are likely to be:

• Is it possible to fix alternative dates for rehearsals/performances/workshops? Even if the venue involved is willing to change these, can all your creative team and performers commit to new dates to make this possible? Any agreement to extend time should be very carefully thought through and the possibility of change clearly drafted. It may be that the contract will have deadlines by which you will let other parties know that you are changing dates, if this deadline has passed you may no longer be able to rely on the availability of, say, key performers, even if you secure new dates from a venue.
• Can you review, extend or terminate contracts without sanctions at future agreed milestones or dates? You don’t want to lose rights that you need if the pandemic goes on for a long period.
• Don’t forget when negotiating that one party may have a greater need than the other for the contract, which will of course affect relative negotiating positions need to be considered.
• Finally, where an agreement to vary is negotiated, make sure it is documented properly.