La version française de cette communication est publiée ici.
On March 13, the Government of Québec declared a public health emergency as a result of the COVID-19 pandemic. Since then, COVID-19 infections have spread worldwide and across Canada. The Canadian federal government and the government of every Canadian province have now declared COVID-19 to be a public health emergency. The emergency measures ordered by the Québec government were expanded on March 25 by an order reducing economic activity to only allow the provision of essential and priority services until April 13.
This Québec-focused update contains information on whether and when a party to a contract may be released from fulfilling their contractual obligations by relying on force majeure under Québec law due to COVID-19 disruption. For information on the application of force majeure clauses to COVID-19-related business disruption in the rest of Canada, please see our bulletin here.
What you need to know
Force majeure (FM) exists as a matter of law under the Civil Code of Québec (CCQ), unless the parties have agreed to exclude, modify or limit its application.
The notion of FM is interpreted narrowly in Québec. While FM is a general principle of law in Québec, and can be relied on in the absence of an FM clause, it is narrowly interpreted, and Courts are reluctant to qualify an event as FM.
Insurers are bound to indemnify their insureds for damages caused by FM unless the insurance policy expressly and restrictively stipulates an exclusion preventing coverage for FM events.
Can COVID-19 constitute a FM under Québec law? This will depend on whether the effects of the pandemic on the contractual obligations were unforeseeable at the time the contract was formed, irresistible at the time the party was to perform its contractual obligations, and whether the pandemic caused the performance of these obligations absolutely impossible. Many contractual obligations will have become impossible to perform under the sweeping emergency orders promulgated by the Québec government.
Evaluating a particular obligation under FM will depend on the nature of the contractual relationship, on the effects of COVID-19 and of the emergency orders on the party’s ability to fulfill its obligations, and on whether the contract governing the parties’ relationship was governed by an FM clause modifying the generally applicable legal principles. Businesses should seek legal counsel and proceed with caution in determining if COVID-19 would release them from performing a given contractual obligation.
Steps to take when relying on FM in Québec. A party facing an absolute impossibility to perform its obligations due to the COVID-19 emergency should take certain steps: notify the other party of its inability to perform one or more obligations as soon as possible; perform other contractual obligations to the extent possible; and take other steps to mitigate the impact of COVID-19, while providing evidence to the other party that they have taken those steps.
Where a business is invoking the impossibility of the other party to the contract to perform its obligations, justification of the facts supporting this should be clearly notified to that other party. This may be appropriate where, for example, the business is due to make advance payment for services that will be impossible to perform given the state of emergency. Partial payment may be appropriate in some circumstances where FM provides only a partial release.
Proactivity is key. Businesses should review their contracts for FM clauses which may define FM more broadly than stipulated by law or may exclude the effects of FM altogether, and should determine whether their contractual obligations are obligations of warranty. In general, FM will not release a party from an obligation of warranty. Businesses should prepare themselves to mitigate and respond to the effects of COVID-19 to ensure compliance with their existing contractual obligations and determine where they face litigation risks.
When can a business rely on COVID-19 as FM in Québec?
Unlike most common law jurisdictions, FM (also referred to as superior force) is a general principle of law in Québec which applies to contracts even in the absence of an FM clause. Article 1470 CCQ defines FM as an “an unforeseeable and irresistible event.” The CCQ definition of FM is not mandatory. The parties may define FM more broadly or narrowly in their contract (by either limiting or excluding the application of FM or by specifically defining a pandemic or other scenario to be FM for the purposes of the contract).
When the parties have not modified or excluded the definition or effects of FM in their contract, the following conditions must be fulfilled for FM to apply in Québec:
The event in question must have been unforeseeable;
The event in question must have been irresistible;
The event in question must have been independent of the non-performing party;
The event in question must have led to an absolute impossibility of performance.
These conditions are discussed in greater detail below.
The event must have been unforeseeable at the time the contract was formed. For example, the termination of another contract (such as a supply agreement) will not likely be considered FM if the termination of such contract occurs regularly or in the ordinary course. On the other hand, if the termination of such other contract does not occur regularly, the event could be sufficiently unforeseeable to fulfill this condition.
The moment at which the contract was formed will often be determinative. COVID-19 related disruption was probably unforeseeable in the case of contracts concluded last year, but not after the World Health Organization and various governments in Canada and elsewhere declared states of emergency.
FM is an irresistible event which must render any preventive intervention futile. The event must also be inevitable and its effects must be insurmountable. Increased difficulty or cost of performance does not reach this threshold. For example, natural disasters might be irresistible, but the consequences of a natural disaster could potentially be prevented and will not amount to FM in all cases. Preparation for reasonably foreseeable natural disasters is to be expected and a party cannot invoke FM to be released from liability if they did not take reasonably necessary measures to prevent the event’s effects.
A decision made by public authorities can be an irresistible event.
3. Independent event
FM cannot be attributed to the party who invokes it. Rather, it must result from an event that is independent of the non-performing party, over which they had no control, and be outside their normal activities.
4. Absolute impossibility of performance
Impossibility of performance cannot be personal to the non-performing party and would have to be so general as to apply to any party in the same circumstances. Particular contracts may contain FM clauses that vary this principle.
Release is total when FM renders all performance impossible. Release may be partial if FM only prevents performance of part of a party’s contractual obligations.
Application of these principles
While much will depend on the facts of each case and the specific contractual obligations at issue, it is likely that courts would conclude that COVID-19 amounts to FM in some circumstances and accordingly release non-performing parties from their obligations in whole or in part.
The emergency orders issued by the Québec government must be examined closely to determine exactly what activities or services are being prohibited or restricted and whether this renders the contractual obligations impossible to fulfil. Certain orders made by the provincial government or a local government which has declared a state of emergency will be deemed FM for those obeying them.
In 2010, the Court of Québec released providers of Mexican travel bundles from performing part of their obligations due to FM resulting from the H1N1 virus that was spreading in Mexico at the time. The courts found the viral epidemic to be unforeseeable at the time the contracts were formed.1
Specific types of contracts and obligations
Before invoking FM, parties should be sure to qualify the type of contract at issue, particularly if it is not governed by an FM clause. Québec law contains specific FM rules governing certain types of contracts.
It is also important to verify the provisions in the contract itself, and the provisions of the CCQ to determine if the contractual obligation in question is of means or of result (in which case parties may be released from performance in cases of FM), or is an obligation of warranty (in which case a party may not generally be released from performance even in cases of FM).
It is of interest to note that an insurer is bound to make reparation for the injury of an insured caused by FM, unless the insurance policy expressly and restrictively stipulates an exclusion preventing coverage for FM events.
Evidence required to establish FM and effects of FM
Evidence of FM is demanding and requires proof of exceptional circumstances. The party invoking FM has the burden of proving the FM, that FM alone caused the inability to perform, and that their creditor could not have benefitted from performance due to FM. A party who has already been put on notice of their default cannot be released from liability due to FM, unless the creditor would be unable to benefit from performance as a result of the FM event.
When the conditions of FM are fulfilled, the debtor of the obligation is released from performance of the contractual obligation. Since breach of contract and FM are mutually exclusive, FM cannot result in a sharing of liability when the conditions are met, although FM can result in partial or temporary release from obligations.
Where one party is released from a material obligation as a result of FM, the other party will be released from their correlative obligations. This may result in a requirement to repay amounts that have been paid in advance, or a requirement to make partial payment if only part of the obligation was impossible to perform.
Force majeure will be invoked often in Québec contract disputes relating to COVID-19 disruption, given that it is an implied term of most contracts under the CCQ. Where the parties have not modified or limited its application, the party invoking FM will have to establish that the obligations have become impossible to perform because of an unforeseeable and irresistible event independent of the parties themselves. While it is likely that COVID-19 amounts to FM in many circumstances, the emergency orders of the Québec government must be examined closely, in light of the parties’ contractual relationship, to determine exactly what activities or services were prohibited or restricted and whether this made it impossible for the parties to perform obligations set out in their contract.
#Lebrun c. Voyages à rabais, 2010 QCCQ 1877; Béland c. Voyage Charterama Trois-Rivières Ltée, 2010 QCCQ 2842.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
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