By Matt Crouch, principal, Matt Crouch Legal
Wow! What a summer we’ve seen. Mega bushfires, wild thunderstorms and damaging winds; power, phone and internet outages, flooding and now the coronavirus (covid-19). You could be forgiven for thinking Nostradamus got it right…
As all readers will appreciate, this has hit the events and business travel sectors harder than most. I am aware of many, many cancellations and postponements.
There is a big difference between voluntary cancellation or cancellation because the event is not tracking well financially – and the kinds of circumstances I mentioned above.
Commercially it is hurting big-time – but what does this all mean in terms of our legal position? Well, it all depends. I know you cringe when I say that, but read on so I can explain and simplify…
The foundation stone for your legal position is almost always your contracts. Let’s assume you are an event manager or PCO. Your important contracts are with clients, suppliers and sponsors and, if attendees are paying to attend, with them as well.
The question may well be, can you keep or do you have to refund money you have received? Do your suppliers get to keep the money you have paid them or are they required to refund? What happens to your contract? Do you have to keep performing your obligations?
Many contracts are silent on what is to happen if an event becomes untenable because of the kind of external forces noted above. These are sometimes called “Acts of God” – but hey are often lumped in with human causes like wars and riots, strikes and the like.
There is a legal principle that may come to the rescue – it is called “frustration of contract”. Put simply, this rule applies if unforeseen circumstances beyond the control of the parties occur, having the effect that the contract cannot be performed (or would require radically different obligations). If such things occur, the contract comes to an end.
But here is the rub – under the general rule, the contract is at an end not from the beginning, but only from the point of frustration. Only future obligations come to an end – and that may mean that you will not get your money back from suppliers!
Under the general principle, you may be entitled to a refund if the other part hasn’t done any of the work required to perform their side of the contract. There is legislation (but only in NSW, Victoria and South Australia) that may, or may not, help. Contracting parties can “contract-out” of those laws. If your contract is silent on the issues, you may well be in an uncertain position – and who wants to rely on legal principles when there is a much better way?
By far the best way to manage all this is to have clear provisions in your contract, dealing with such unforeseen events. I am sure you can see the irony here: If the event is unforeseen, how is it that the contract can provide for the consequences if it does occur? The answer is that, provided the contract properly sets out the categories of circumstances that will trigger the relevant clauses clearly, it doesn’t really matter.
Clauses in contracts dealing with such matters are often called “force majeure” (French for “superior force”) clauses. Writing them well is an art-form. Without going into the technicalities of drafting such clauses, remember it is one thing to categorise the external “forces” that can trigger the clause – but it’s also essential to clearly set out the consequences if the clause is triggered.
Some of those consequences to consider might be:
- No further performance of the contract is to be performed – at all or are there some things that should still be done;
- Should money already paid be refunded – all of it or only part?
- Should property be returned?
- Some clauses of the contract such as liability for things already done, confidentiality and intellectual property ownership may need to survive into the future.
Let’s hope we have a return to “normal” conditions in our industry soon – and my sincere best wishes to any of you who have been personally touched by the thunderbolts hurled at us over the past few months.