COVID-19, since it was identified in Wuhan, Hubei, China, has unfortunately been fatal in certain cases but mostly, it has affected our daily activities as well as our economy. To prevent this virus f rom spreading, many countries have closed their borders or have placed restrictions affecting business relationships with the red zone areas currently consisting of China, South Korea, Iran and Italy.
Unable to perform its contractual obligations due to certain restrictions stemming from the existence of COVID-19, a debtor may seek to invoke force majeure to exit from its contractual relationship or to postpone the execution of its obligation. In fact, according to South China Morning Post, “More than 3,000 certificates were issued in February to Chinese companies seeking to invoke force majeure because of the coronavirus outbreak”1.
The first element to establish is if the contract is ruled by Québec Laws. If that is the case, then the existence of a force majeure clause must be verified, and its scope must be reviewed to ensure that COVID-19 falls into any of the force majeure events. Then, it is important to verify the notice period and the type of notice required to trigger the clause properly, in addition to mitigating damages.
In the absence of a contractual definition of force majeure in the contract, the Civil Code of Quebec applies. As per the Civil Code of Quebec2, force majeure (also known as superior force) is an unforeseeable and irresistible event, including external causes with the same characteristics. Even if force majeure is invoked, it is not a guarantee that the execution of the obligation will be cancelled or postponed.
The Civil Code of Quebec3 is to the effect that the debtor is released from executing its obligation if the force majeure happens before the debtor is in default. If the debtor is in default before the force majeure happens, the debtor will be released if the force majeure would have prevented the creditor f rom benefitting f rom the performance of the obligation. Therefore, if a contractor was already in default before COVID-19 was identified, but thereafter the performance of its obligations was halted because of the current state of emergency, it is possible that the debtor will be released from its obligations or that the performance of said obligations will be postponed. In case of a full release of its obligations, any money received by the debtor in consideration of the performance of its obligations must be returned to the creditor4. Finally, in the case of a contract pertaining to international sale or purchase of goods not governed by the Civil Code of Quebec, the same comments will apply5.
In case of damages suffered stemming from the current situation, it is advisable to review the company’s insurance policy in case they can be recovered.
Considering the current worldwide health crisis, we invite you to contact our attorneys at AVENS Montréal for a review of your contracts and to clarify your rights and obligations or to simply help to reduce your damages.
2 Article 1470 Civil Code of Québec S.Q. 1991, c. 64
3 Article 1693 Civil Code of Québec S.Q. 1991, c. 64
4 Article 1699 Civil Code of Québec S.Q. 1991, c. 64
5 Article 25 of the United Nations Convention on Contracts for the International sale of goods (1980)