CONTRACTUAL IMPLICATIONS OF COVID-19 FOR BRAND MARKETERS BRENT J. ARNOLD ACA, April 14, 2020
AGENDA Topic Force Majeure in Marketing Contracts Frustration of Contract Protecting Your Interests Questions 2
FORCE MAJEURE IN MARKETING CONTRACTS • What is a force majeure clause? o Provides relief to a party unable to meet its contractual obligations due to extraneous circumstances outside the parties’ control o Allocates risk by excusing the party from performing its obligations, and insulates it from the usual consequences of breach of contract Also called an “Act of God” clause o Typically lists specific risks, and catch- all language (e.g. “or any other causes beyond the parties’ o control”) o Typically allows a party to suspend / extend performance, not to terminate the contract entirely 3
FORCE MAJEURE IN MARKETING CONTRACTS • Not a “get out of jail free” card for the party unable to perform: “circumstances beyond our control” does not equal: o o Reading the market wrong (e.g. overestimating demand) o Lack of a viable business plan o If a risk was foreseeable and preventable through diligence, force majeure won’t be available o Fact that a pandemic was happening, but other factors are the real cause of the problem o Party relying on force majeure still has an duty to mitigate its losses: o Must exhaust all options available to it to ensure performance before relying on the clause o Will be available where the party relying on the clause has no ability to affect / change the circumstance preventing performance o Query: A contract signed in 2017 contains a force majeure clause but does not specifically mention pandemic / epidemic / quarantine / government-ordered social distancing. Were any of these unforeseeable, post-SARS? 4
FORCE MAJEURE IN MARKETING CONTRACTS • Sample Definition and Clause: “ Force Majeure ” means unforeseeable reasons or causes beyond a Party's reasonable control, which may include without limitation, war (whether or not declared), sabotage, insurrection, rebellion, riot or other act of civil disobedience, act of a public enemy, act of any government or any agency or subdivision thereof, fire, accident, explosion, epidemic, quarantine, restrictions, storm, flood, earthquake, or other act of God, which could not be reasonably expected to be avoided, or new laws or regulations forbidding or limiting the execution of this Agreement. 5
FORCE MAJEURE IN MARKETING CONTRACTS • Sample Definition and Clause: If at any time Agency becomes aware that it may not be able to perform the Services or deliver any Deliverables by any date set out in the applicable Scope of Work (or any other deadline agreed by the Parties in writing), Agency will promptly notify Advertiser and give details of the reasons for the delay. Unless the delay is caused by Force Majeure, in which case the provisions of Section 27 will apply, Agency’s failure to perform the Services would represent a material breach of this Agreement entitling Advertiser to terminate this Agreement if the breach is not remedied in accordance with Section 25.5.2. 6
FORCE MAJEURE IN MARKETING CONTRACTS • Sample Definition and Clause: Section 27: In the event that either Party will be rendered wholly or partially unable to carry out its obligations under this Agreement due to Force Majeure, then the performance of either Party or both Parties, as they are affected by such cause, will be excused during the continuance of any inability so caused, but such inability will be remedied with all reasonable dispatch. In the event such Force Majeure affecting either Party continues for more than thirty (30) days, the Party not subject to the Force Majeure may terminate this Agreement. During the period of a Force Majeure, Advertiser will be entitled to seek an alternative service provider at its own cost with respect to the Services affected. Advertiser will be relieved of the obligation to pay any Fees or any other charges for the provision of the affected Services throughout the duration of such Force Majeure. Notwithstanding the foregoing, in no event will any delay caused by a strike or other labor dispute within Agency excuse Agency’s obligation to perform as required under this Agreement. 7
FORCE MAJEURE IN MARKETING CONTRACTS • The ACA model force majeure clause — ASA commentary: 8
FORCE MAJEURE IN MARKETING CONTRACTS • The ACA model force majeure clause — text: 9
FRUSTRATION OF CONTRACT • Frustration = a common law doctrine that also relieves a party from obligations under a contract o Typically applies when a contract contains no force majeure clause , not where the force majeure o Also reserved for situations that the parties could not have anticipated o Performance must be impossible o Typically results in the termination of the contract (not the suspension / extension of performance, as in force majeure ) o Releases future obligations; does not relieve the party of accrued liabilities / obligations 10
FRUSTRATION OF CONTRACT Frustrated Contracts Act , RSO 1990, c F.34 • Allows for the recovery of amounts paid where a contract is frustrated • Also allows the court to sever the frustrated part of the contract, allowing the rest to stand (unlike frustration at common law, which terminates the contract entirely) 11
FRUSTRATION OF CONTRACT Frustrated Contracts Act , RSO 1990, c F.34 Application of the Act 2 (1) This Act applies to any contract that is governed by the law of Ontario and that has become impossible of performance or been otherwise frustrated and to the parties which for that reason have been discharged. R.S.O. 1990, c. F.34, s. 2 (1); 1993, c. 27, Sched. • “impossible” and “frustrated” are not defined 12
FRUSTRATION OF CONTRACT Frustrated Contracts Act , RSO 1990, c F.34 Adjustment of rights and liabilities 3 (1) The sums paid or payable to a party in pursuance of a contract before the parties were discharged, (a) in the case of sums paid, are recoverable from the party as money received for the use of the party by whom the sums were paid; and (b) in the case of sums payable, cease to be payable. R.S.O. 1990, c. F.34, s. 3 (1). 13
FRUSTRATION OF CONTRACT Frustrated Contracts Act , RSO 1990, c F.34 Expenses (2) If, before the parties were discharged, the party to whom the sums were paid or payable incurred expenses in connection with the performance of the contract, the court, if it considers it just to do so having regard to all the circumstances, may allow the party to retain or to recover, as the case may be, the whole or any part of the sums paid or payable not exceeding the amount of the expenses, and, without restricting the generality of the foregoing, the court, in estimating the amount of the expenses, may include such sum as appears to be reasonable in respect of overhead expenses and in respect of any work or services performed personally by the party incurring the expenses. R.S.O. 1990, c. F.34, s. 3 (2). 14
FRUSTRATION OF CONTRACT Frustrated Contracts Act , RSO 1990, c F.34 Benefits (3) If, before the parties were discharged, any of them has, by reason of anything done by any other party in connection with the performance of the contract, obtained a valuable benefit other than a payment of money, the court, if it considers it just to do so having regard to all the circumstances, may allow the other party to recover from the party benefitted the whole or any part of the value of the benefit. R.S.O. 1990, c. F.34, s. 3 (3). 15
FRUSTRATION OF CONTRACT Frustrated Contracts Act , RSO 1990, c F.34 Assumed obligations (4) Where a party has assumed an obligation under the contract in consideration of the conferring of a benefit by any other party to the contract upon any other person, whether a party to the contract or not, the court, if it considers it just to do so having regard to all the circumstances, may, for the purposes of subsection (3), treat any benefit so conferred as a benefit obtained by the party who has assumed the obligation. R.S.O. 1990, c. F.34, s. 3 (4). 16
FRUSTRATION OF CONTRACT Frustrated Contracts Act , RSO 1990, c F.34 Insurance (5) In considering whether any sum ought to be recovered or retained under this section by a party to the contract, the court shall not take into account any sum that, by reason of the circumstances giving rise to the frustration of the contract, has become payable to that party under any contract of insurance unless there was an obligation to insure imposed by an express term of the frustrated contract or by or under any enactment. R.S.O. 1990, c. F.34, s. 3 (5). 17
FRUSTRATION OF CONTRACT Frustrated Contracts Act , RSO 1990, c F.34 Special contractual provisions (6) Where the contract contains a provision that upon the true construction of the contract is intended to have effect in the event of circumstances that operate, or but for the provision would operate, to frustrate the contract, or is intended to have effect whether such circumstances arise or not, the court shall give effect to the provision and shall give effect to this section only to such extent, if any, as appears to the court to be consistent with the provision. R.S.O. 1990, c. F.34, s. 3 (6). 18
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