The client’s question was existential: they’re organising a conference in the next few months, selling thousands of tickets for what will be a huge event with major corporate sponsors.
They’ve booked the venue and paid the enormous non-refundable deposit. But now the board members are asking themselves, considering their directors’ duties and the rising public panic over COVID-19, whether they need to postpone or cancel the event altogether.
The way things are looking, if they run it they’ll make a massive loss.
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Can they cancel now and get their money back? It’s a question being asked all over town, the country and the world.
While financial loss from unfulfilled contracts isn’t the COVID-19 consequence of most human significance, it has economy-wrecking potential on its own.
As part of our newly minted coronavirus law practice, we find ourselves contemplating making what for lawyers is a pretty exciting call: a declaration of force majeure.
I know, sexy.
Actually, maybe I shouldn’t have italicised those words. The protocol of many journals is to save that special honour for Latin maxims, while force majeure is merely French. That’s an interesting story in itself: the legal principle of force majeure is an import from Napoleonic civil law, sort of an alien intruder into the English common law which has always resisted such exotic continental influences.
I think force majeure found its way in because, like Roquefort cheese, it has an irresistible charm that masks its underlying complexity.
Peculiarly, although it is squarely recognised as part of our law, it exists only when a contract says it does.
Ok I’m getting a bit abstruse, so back to the practicalities. Contracts very often have a clause that says something like this: if an event of force majeure occurs, all bets are off.
Force majeure means literally “superior force”, or in legal terms a supervening and unexpected event, external to the contracting parties, that makes it impossible for them to perform their bargain.
When force majeure occurs, the contract usually provides that the parties’ obligations are suspended without penalty. Everything, so far as it can be, is held in suspense until the nastiness goes away.
Typical force majeure events include natural disasters, war, terrorist acts, alien invasion (rare, but I have actually seen it in a contract — not kidding) and, usually, “acts of god”. That last is never defined, presumably because we’ll all know it when we see it.
Also often included in the list are epidemics and pandemics. That brings us to COVID-19. Lawyers are scratching their heads as to whether, yet, it constitutes a force majeure.
The problem for the moment is that while a casual glance at social media (or most mainstream media) would leave the strong impression that the only uncertainty about COVID-19 is the date on which we’re all going to die, that’s not quite backed up by the less exciting facts. At least, not at this stage.
The World Health Organisation has declared it a global pandemic. The official stats are showing a bit over 100,000 infected patients and less than 4,000 deaths so far, not numbers to sneeze at (sorry) but not the black death either.
Australia has just cracked 100 cases. Maybe that will start to spike exponentially, but the trajectory so far suggests that’s unlikely.
At present, from a strictly legal perspective, the real threat to the ability of contracting parties to perform their contracts and not go broke in doing so is the panic. Or, more benignly, the public perception of risk as opposed to the medical risk itself.
For a conference organiser, airline or restaurateur, there’d be no problem if people felt safe enough to keep turning up. But they don’t, meaning empty seats everywhere, so the providers in turn need to get out of their pre-committed contracts if they’re not going to go under altogether.
As it happens, by May we might all be in enforced quarantine like Italy and force majeure would be unarguable. It’d also be too late to save very many businesses.
They need to make the hard calls right now, with information that is sketchy and often unreliable. The legal risk flowing from making the “wrong” call now is extreme.
Like other lawyers (I expect), we’re trying to give our clients pragmatic advice, balancing the risks carefully. COVID-19 is unprecedented, so nobody really knows how the inevitable legal disputes that follow will be dealt with by the courts.
That’s not a reassuring answer to the questions we’re being urgently asked.
What the situation begs is a response lawyers can’t provide, but government can. The true threat to commerce and the economy is coming from the fear that is rapidly paralysing everything.
Government (that’s you, Scott) needs to respond with two things: leadership (still waiting for that) and money. Big buckets of money. They guaranteed the banks in the GFC; something similar is needed now, but on a vastly broader scale. Today is a key test for the federal government.
Otherwise, the next big boom area for lawyers will be corporate insolvency.