Author(s):
Céline Legendre, Frédéric Plamondon
Mar 19, 2020
For further information on the changes below, please contact one of the authors above or any member of our Corporate and Commercial Litigation Group in the Montréal office.
COVID-19, an unprecedented global health crisis, may bring about significant implications on organizations’ legal and contractual obligations. Key among those in Québec is the concept of force majeure, as discussed in this article.
Organizations interested in addressing the relationship between force majeure, contractual relations and the economic expectations in a common law context are invited to consult the following Osler article: Contractual rights and obligations in the context of COVID-19.
The determination of what constitutes force majeure in Québec is circumstantial and depends on a number of factors, such as the importance of the event in question, its recurrence or even the moment at which it arose. In any event, in the absence of a court determination and given the evolving nature of the current COVID-19 crisis, it is impossible to determine in the abstract whether force majeure will serve as a defence to all obligations, in any circumstance.
Past disruptive events can, however, provide some guidance as to whether Québec courts may characterize the COVID-19 pandemic as a force majeure, which was the case for the 1990 Oka crisis, 1998 ice storm, September 11, 2001 attacks, 2003 SARS crisis, 2008 economic crisis and 2009 H1N1 virus. All of these events have, for the most part, been described, in particularized circumstances, as a force majeure under Québec civil law.
Force majeure as a defense in Québec civil law
The Québec notion of force majeure is unique as compared to the common law provinces in that it is set out in various laws and regulations, including the Civil Code of Québec (CCQ) governing all private relations. The importance of force majeure as a general defence is well-established in Québec law. Conversely, “there is no common law right to invoke force majeure, and whether COVID-19 (or its consequences) qualifies as a force majeure event will be determined by factors related to the specific agreement.”
In a nutshell, the legal effect of an event qualified as a force majeure by Québec courts is that the debtor is released from having to perform its contractual obligations. Moreover, if liability is at issue, the debtor is also released from liability. In relation to contractual obligations, force majeure can suspend performance of the debtor’s obligations or even lead to the termination of the contract as a whole where there is substantial failure of performance.
That being said, the application of force majeure varies according to the intensity of the obligation (i.e., on the degree of guarantee promised to the co-contracting party). In the presence of an obligation of guarantee (meaning that the contracting party must, without fail, execute the result guaranteed to its co-contracting party), force majeure cannot constitute a waiver of liability.
In addition, and importantly, force majeure is not of public order (or imperatively imposed by the legislator) in Québec and, as such, contractual provisions can modify the default provisions provided by law. Consequently, a case by case analysis must be conducted to assess, for example, whether a party may have assumed the risk of a force majeure event.
Conditions to establish force majeure
- Unforeseeability
- An event is “unforeseeable” if a prudent and diligent person placed in the same circumstances could not reasonably have foreseen its occurrence. However, an exceptional situation is not in itself necessarily unforeseeable.
- Irresistibility
- The “irresistible” event leads to the absolute impossibility for the debtor to fulfill its obligation or to take reasonable measures to avoid the occurrence of the event. If performance becomes such that it is more difficult or onerous rather than impossible, this condition is not satisfied.
- External causes
- Although it does not appear in the text of the CCQ, Québec courts have generally required the presence of a third condition, namely that of “exteriority” (l’extériorité) of the event. Exteriority consists of the non-participation of the debtor in relation to the occurrence of the event. It must have occurred independent of the counterparty’s will.
Relevant past disruptive events in the context of the COVID-19 pandemic
Past disruptive events can provide us with some guidance as to whether Québec courts may characterize the COVID-19 pandemic as a force majeure.
H1N1 virus (force majeure recognized). In Lebrun c Voyages à rabais (9129-2367 Québec inc.) and Béland c Voyage Charterama Trois-Rivières ltée, the Court of Québec recognized that the H1N1 virus constituted a force majeure for an airline company.
1990 Oka Crisis (force majeure recognized). In Sotramex inc. c Québec, the Superior Court ordered payment of the extra fees incurred by the plaintiff, Sotramex Inc., as a result of the Oka Crisis and the closing of the Mercier Bridge. The parties signed a fixed-price contract wherein Sotramex Inc. agreed to transport contaminated materials to Ontario. As a consequence of the Oka Crisis, which was qualified by the Court as a force majeure, Sotramex had no other choice but to take a new route, which resulted in higher mileage and extra fees. As the contract between the parties provided for the Ministry’s liability in force majeure situations, Sotramex was entitled to be compensated for the extra fees incurred in the course of the carrying out of the contract.
1998 ice storm (force majeure recognized). In Pierrevillage inc. c Construction 649 inc., the lessee argued that the lessor failed in its obligation to ensure peaceful enjoyment due to an evacuation of the premises and water infiltration caused by the ice storm. The Superior Court held that the ice storm was a force majeure and therefore, in these circumstances, the lessor had carried out the required repairs diligently and had not failed in its obligation to ensure the peaceful enjoyment of the premises. The lessee was held to pay the rent.
September 11, 2001 attacks (force majeure recognized). In Gestion Initiative Développement GID Ltée c Québec New York 2001, the plaintiff requested payment of the balance of $100,000 owed to it under the service contract that was cancelled before it was fully performed as a result of 9/11, which was qualified by both parties as a force majeure event. The decision related to whether the plaintiff was entitled to the balance of $100,000, even though it was unable to fully perform its obligations due to 9/11. The court analysed the clause of force majeure provided for in the agreement between the parties where it was stipulated that the plaintiff was only entitled to fees, costs and disbursements corresponding to the actual value of the services rendered from the date of termination of the agreement. In applying this contractual provision, the court ordered payment for services that had been rendered up to 9/11 and ordered a deduction on the services that were not rendered as a result of 9/11.
September 11, 2001 attacks (force majeure not recognized) In Caisse Desjardins de St-Paulin c. Bombardier inc., the defendant had the burden to prove that the events of 9/11 constituted a force majeure within the meaning of the contract as well as under the CCQ, which would have entitled it to terminate its contract. The Superior Court held that the defendant was unable to demonstrate the existence of a force majeure as defined under the contract. Indeed, the defendant had managed to avoid all order cancellations in relation to the manufacturing of the CRJ-200 planes. Accordingly, the Court found that the events of 9/11 had, at most, only slightly delayed some of its deliveries.
Conclusion
Whether COVID-19 is found to be a force majeure event will thus depend on a number of factors, such as the specific agreement in question, the force majeure provision (if any) and the factual matrix behind the agreement. Further, uncertainty remains in terms of the scope of its application, as demonstrated in the Bombardier decision, which provides an important reminder that organizations cannot necessarily invoke a force majeure event as an umbrella for the release from all of their obligations. As mentioned above, force majeure is mentioned in several Québec laws affecting a wide array of organizations’ relationships (employees, customers, third parties, etc.). For further information relating to an organization’s specific situation, it is highly recommended that the appropriate legal experts be consulted.
The authors would like to thank Cristina Cosneanu and Emily Lynch for their contribution to this article.
This article was republished by Droit-Inc.com here (in French only).