Posted on March 22, 2020 by Lindsay Taylor and Elaine Yeo

Council Venue Cancellations Arising from COVID-19 – Applicable Contract Law Principles

The Public Health (COVID-19 Mass Gatherings) Order 2020 (‘Order‘), made under section 7 of the Public Health Act 2010 (NSW) took effect at 5pm on 18 March 2020.  The Order prohibits gatherings of 500 or more people in ‘a single undivided outdoor space‘ and 100 or more people in ‘a single undivided indoor space‘ in New South Wales until midnight on 16 June 2020.

It is conceivable, and perhaps likely, that the period covered by the Order will be extended and that further restrictions on gatherings will be imposed as the COVID-19 health crisis unfolds in New South Wales. New government guidelines being reported as this post is being written recommend that for indoor gatherings of less than 100 people, a standard ‘social distance‘ of 4 square metres per person should be adopted. There are also reports of possible suburb lock downs in Australian cities if the crisis worsens.

The combined effect of the Order and ‘social distancing‘ measures recommended by governments and health professionals is likely to lead to the cancellation of gatherings and events which had been booked to be held at venues such as public reserves and Crown reserves managed by the Council and Council facilities, such as community halls, educational venues, entertainment venues, and sporting and recreational facilities, both indoor and outdoor (‘Venues‘) and are the subject of facility and venue hire agreements and other similar contracts (‘Venue Agreement‘). It is also likely that longer term contractual arrangements, such as but not limited to leases and licences, may be subject to non-performance during the current health crisis.

This post provides local councils with a broad overview of the legal principles applying to the cancellation of gatherings and events covered by Venue Agreements (‘Venue Cancellations‘) due to government public health responses and the severe economic disruption being experienced in relation to the COVID-19 crisis. The principles are equally applicable to functions exercised by councils under the Local Government Act 1993 and  the Crown Land Management Act 2016.

General contract law principles: ‘force majeure‘ & ‘frustration

‘Force majeure’

The term ‘force majeure‘  is used in contracts to describe a circumstance which is beyond the control of a party and which will relieve a party from performance of its contractual obligations where that performance is impacted by events outside the party’s control, such as natural disasters or war. Some contracts define what is a ‘force majeure event‘ and others merely rely on common law principles relating to force majeure. Contracts which define what is a force majeure event typically specify the consequences of such an event on the parties’ rights and obligations under the contract.

In broad terms, courts have held that the performance of a contract will not be ‘beyond the control‘ of a party merely where performance becomes uneconomic: see, for example, Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235; Tandrin Aviation Holdings Limited v Aero Toy Store and Insured Aircraft Title Service [2010] EWHC 40. That is to say, the courts have generally distinguished between a party’s inability to perform a contract and inconvenience to them of performing the contract: see Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd [2006] FCA 1324.

Economic circumstances, no matter how severe, will generally not amount to a force majeure event unless the parties have made express provision in the contract: see Thames Valley Power Ltd v Total Gas & Power Ltd [2005] EWHC 2208 (Comm); Tennants Lancashire Limited v Wilson CS & Co Ltd (1917) AC 495.

It is not uncommon for a force majeure clause to refer to government action, such as legislation, or administrative directions or orders made under legislation. It is less common for a force majeure clause to refer to an epidemic of pandemic.

Force majeure clauses will often oblige a party to take reasonable measures to ameliorate the effects of a force majeure event. Where different means of performing the contract are available but have not been pursued by a party to ameliorate the impact of a force majeure event, a court will be less likely to allow the party to rely on the force majeure event.

Frustration

The common law doctrine of ‘frustration’ will sometimes be available to a party to a contract who claims to be unable to perform the contract. The doctrine applies where a contractual obligation is incapable of being performed, without fault by either party, because the circumstances in which performance is required would render it a thing ‘radically different’ from the obligation undertaken by the party when the contract was entered into: see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; David Contractors v Fareham UDC [1956] AC 696.

However, frustration is difficult to establish as it is insufficient for a party to claim that it is merely difficult or uneconomic to perform the contract, or there is inconvenience or even hardship involved in the performance of the contract. Further, if the parties to a contract have included a force majeure clause in the contract, the courts seem less inclined to apply the doctrine of frustration to the contract.

Under common law, if a contract is frustrated, the parties are discharged from further performance. In New South Wales, the Frustration of Contracts Act 1979 (NSW) may also apply and will govern the rights and liabilities of the contract after frustration.

COVID-19 & Venue Cancellations

Whether the COVID-19 crisis or the Order or both will enable a party to a Venue Agreement to rely on force majeure or the doctrine of frustration to avoid performance of an obligation or the whole agreement, or would enable a council to resist a claim for breach of contract for cancelling an event, is to a large extent is dependent on the particular terms of the contract.

A good example is provided by Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169. In that case, the High Court of Australia rejected a claim that a contract for the hire of neon signs was frustrated in circumstances where a governmental war-time order prohibited illumination of the signs. There was an express provision in the contract which provided that rent for the signs was to be paid regardless of whether or not the signs were used and, furthermore, the lessors did not warrant that the signs could be illuminated during the term of the contracts.

So far as Venue Agreements are concerned, the relevant effects of the COVID-19 crisis involve economic disruption and government action, either or both of which in any particular case, may impact on the performance of an agreement.

In the broadest terms based on the applicable legal principles:

  • it is unlikely that the economic disruption caused by COVID-19 or government action, such as the Order, will be a force majeure event unless expressly contemplated by the Venue Agreement,
  • it is more likely that government action, such as the Order, can be relied on to frustrate a Venue Agreement where the agreement relates to gatherings or events in numbers that are expressly prohibited by the Order and the agreement does not provide for force majeure,
  • it is unlikely that the economic disruption caused by COVID-19 could be relied on to frustrate a Venue Agreement irrespective of whether the agreement provides for force majeure.

However, it should be stressed that each circumstance must be considered by reference to the particular terms of the Venue Agreement.

If you would like to discuss this post, please contact Dr Lindsay Taylor on 02 8235 9701 or Elaine Yeo on 02 8235 9712.