Your Contract During a Pandemic

On 11 March 2020, the World Health Organisation declared COVID-19 a pandemic, which it defines as a global spread of a new disease. The CDC uses the term to describe viruses which “are able to infect people easily and spread from person to person in an efficient and sustained way”.

Todate, governments and communities around the world have taken various measures to control the outbreak of the virus. It is of course always prudent to err on the side of caution, and I hope we will all be able to one day look back and say, "Man, we sure went overboard with those measures."

But coming back to the here and now, the outbreak, measures taken to control it and the consequences arising from such measures have very real impact on us and those around us. Businesses are affected, supply chains may be interrupted, your travel plans thrown into disarray or that long-awaited concert is set to be cancelled. What is your legal recourse, as a vendor and customer, in such instances?

The terms that have been bandied about are "force majuere" and "frustration of contract". What are they?

Frustration of Contract

Very briefly, Malaysian law provides that a contract is generally said to be frustrated when there is a subsequent supervening, extraneous (i.e. not caused or brought about by or within control of parties), unpreventable (by parties) and unforeseeable change in circumstances which renders a contract legally or physically impossible of performance, or that the performance of the contract in the new situation is so fundamentally and radically different from that originally contemplated that it is no longer the same contract. Mere difficulty in performance or increase in costs do not amount to frustration. The idea here is that given the radical change in circumstance, it is no longer possible or fair to compel parties to comply with the original contract. When there exists such a frustration (1), the contract is said to be discharged or that it has automatically come to an end.

I explore below the example of where a concert is frustrated by an immediate ban by authorities. Other real-world examples which may apply to you may include the restriction of entry of certain flights from certain countries, and the enforced closure of hotels, restaurants and tourist attractions.

Force majeure

Force majeure however is conceptually quite different from frustration. A force majeure clause is principally an agreement or a term found in an agreement between parties as to how outstanding obligations should be resolved upon the onset of a foreseeable, identified event. The uncertainty and inconvenience which may arise from an unforeseeable event frustrating a contract are avoided by incorporating a well-drafted force majeure clause that clearly defines the events or circumstances that constitute force majeure. More importantly, such a clause can be crafted to provide a more nuanced response to or agreed consequence arising from events of force majeure. For example, it may be provided that, in circumstances constituting force majeure, an extension of time may be granted to the party in default, there may be cancellation of the contract at the option of one party, or the defaulting party’s duty to perform the contract will be suspended (2). The contract is thus not automatically brought to an end (3).

Consequence of Discharge

In instances when a contract has been frustrated, or arguably when a contract is discharged pursuant to a triggered force majeure clause without any agreed consequence, several outcomes may come into play, depending on the factual peculiarities of each contractual relationship. These may be re-compensation for any advantage received or sums paid (sometimes subject to set-off of expenses), refund of deposits and cessation of future obligations for payment.

How does this apply the real-world, in this time of COVID-19?

Application

Say for example you bought a ticket to a Bunkface concert. Today is Monday, and the concert is still set to go on this Saturday. Despite being the biggest Bunker (4) in the country, you are hesitant to attend the concert, for fear of being exposed to the virus. Unfortunately, and unless there is an applicable force majeure clause in place spelling out what happens in the event of a virus-scare (force majeure clauses are not typically found in such a contract/concert ticket), that alone is not sufficient to amount to a frustrating event. There is no impossibility of you attending, nor an impossibility to have the concert. The only thing holding you back is a concern, which in and of itself is not sufficient to frustrate the contact (5).

However, the circumstance changes if on Thursday, the authorities enforce an immediate ban on all public gatherings and events, including the concert. The show, quite simply, cannot go on. This will amount to a frustrating event, bringing the contract to an end. A forceful argument can then be leveled against the organiser for a full refund, or you and the organiser can come to an agreement of sorts to move things forward. Perhaps an agreed postponement, or a refund in the form of credits to future events.

Disclaimer / Waiver Clauses and Duty of Care

But, what of the vendor, the organiser of this Bunkface concert of ours? A voluntary calling off of the concert before Thursday will result in severe financial repercussions, so should you if you do not need to? What if a concert-goer is a carrier, and ends up spreading to 500 others? Surely, that disclaimer on the ticket would be sufficient to shield you from any liability?

Firstly, as a vendor, I will be hesitant to rely on a disclaimer that may appear on the ticket. A typical disclaimer may sound like this:-

The holder of this ticket voluntarily assumes all risk and danger of personal injury (including death) and all hazards arising from, or related in any way to, the concert, whether occurring prior to, during, or after the convert, howsoever caused and whether by negligence or otherwise.

It is possible that this type of language, particularly the phrase “related in any way”, can be argued to cover a fan or concert-goer who contracts the virus from another concert-goer. But, an equally forceful argument (and one I prefer) can also be argued that the risk of the virus has nothing to do with the concert at all.

Secondly, the matter will be further exacerbated if it is found that you as the organiser have not implemented all reasonable efforts and steps to prevent the spread of the virus at the concert, perhaps something as simple as temperature checks at the gates, or if it turned out the carrier is an employee, staff or worker of yours. A claim may be brought against you by a concert-goer who contracted the virus on the basis of a breach of a duty of care to take all reasonable steps to provide a safe venue for the event.

The issue of a duty being imposed on vendors and service providers to take reasonable preventative steps is a very real one which business owners ought to take cognizance of, as it may be applicable to your respective businesses. Some potential examples may arguably include businesses in public spaces such as restaurants, hotels and work spaces.

These may be some of the considerations vendors will have to bear in mind when making some very tough commercial decision in the coming days.

Conclusion

Civil law is there for those who need it to enforce a civil right against another. However, in these trying times, I do hope that good sense prevail in all of us, including business owners and customers alike, so that there is no need to resort to such laws.

Be empathetic, sympathetic. Be human. Be there for each other. We will get through this. As we always have: as fellow Malaysians.

--------------------------------------------------------------------------------------

(1) And provided there is no express agreement between parties that the contract remains in being despite the frustration

(2) See the discussion in the Singapore Court of Appeal case of RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd and Another Appeal [2007] 4 SLR 413 from paragraph [53]. This paragraph have been adapted from paragraph [56]

(3) Of course, the matter of frustration and force majeure clauses are more nuanced than the above general summary. Whole textbooks have been dedicated to the subject. For present purposes, this paragraph will have to suffice

(4) Bunkface fan

(5) The contract being you agreeing to pay RM X to attend and enjoy the concert