With many companies left wondering what they should be doing if an event they were due to work on has been cancelled or postponed, H&E North seeks expert legal guidance. Lynsey Burke, Senior Associate and Solicitor for Nelsons’ dispute resolution team, shares her advice…
With public gatherings no longer able to take place across the UK as a result of the coronavirus pandemic, thousands of venues and suppliers are losing out on business.
From venues and catering companies to photographers and live bands, all these industries, like so many others, will be reeling not only from the impact of COVID-19, but also the refusal of many insurers to accept claims made under business interruption insurance. As such, the question remains as to what suppliers can do when faced with a slew of cancelled events and requests for postponement or cancellation.
Terms and Conditions
The first step in most cases will be to have a look at the contract – what did you agree? Is there a clause that dictates what will happen in the event that either party cannot perform their obligations under the contract due to circumstances outside their control (known as force majeure)? Does that clause stipulate what will happen in relation to any money paid or due at the date of the force majeure event?
If there is no such clause, suppliers will need to consider whether the contract has been frustrated by an event that was unforeseen when the contract was entered into. A contract can be frustrated if:
- The contract becomes impossible to perform and/ or either party’s obligations become radically different because of that unforeseen event.
- The contract does not expressly say what will happen in such circumstances.
- The unforeseen event was not caused by either of the parties.
In the case of contracts entered into before any news reports of coronavirus began to emerge, it seems likely that a contract would be considered to be frustrated. Any such contract entered into now and subsequently affected by COVID-19 would be less likely to be considered frustrated in the legal sense, because we are all now painfully aware of the pandemic.
As ever, there will be that trickier middle ground of contracts that were formed when we’d heard of coronavirus but perhaps hadn’t appreciated just how devastating the consequences were going to be.
If the doctrine of frustration does apply, the contract is immediately brought to an end, with the parties discharged from any outstanding contractual obligations.
Under the Law Reform (Frustrated Contracts) Act 1943, any advance payments made before the occurrence of the frustrating event will be entitled to be recovered, subject to the ability of the receiving party to offset any expenses already incurred.
In respect of monies due at the time the contract was discharged, the party that owes the money will not have to pay, unless the receiving party has already incurred expenses, in which case they will be entitled to be reimbursed for those expenses incurred from the prepayment that would otherwise have been due.
If you’re the venue therefore, and you’ve already ordered food and drink for the event and your contract entitles you to receive a pre-payment as at the date the contract is discharged, you’re entitled to be paid for those expenses incurred.
Likewise, if you’re a florist, for example, who has ordered flowers and your contract includes provision for you to be paid in advance, with the date for payment having passed, you would be well within your rights to require that pre-payment be made, up to the cost of those flowers.
If the venue or florist’s contract does not include provision for pre-payment (or the time for that pre-payment has not passed), even if it has incurred expenses prior to the contract being discharged, the venue/ florist will not be able to claim those from the event organiser.
Again, you’ll need to have a look at your contract to see if it contains terms that would deal with a request to postpone or cancel. Of particular concern for many businesses will be whether or not you can keep deposits paid or require that the event organiser makes payment to you for what would (in the case of a postponement) be a variation to the contract or (in the case of a cancellation) be a termination of the contract.
In either case, suppliers should bear in mind not only the strict terms of the contract, but also the impact of consumer protection legislation, such as the Consumer Rights Act 2015, which confirms that terms in a consumer contract must be fair (this applies equally to the force majeure point, detailed above).
While this should always be a consideration for businesses when drawing up contracts, the Competition and Markets Authority recently confirmed that it considers exceptions to a full refund of deposits paid to be ‘rare’ if the contract has not been performed as agreed.
In times like this, it is very easy for businesses to get overly hung up on their legal rights; clearly these are important, but they do risk obscuring the commercial reality of a situation.
It might be the case that your contract will enable you to retain a deposit or require that a prepayment for a cancelled event still be made. In some instances, it may be absolutely critical to the business’ continued existence that those payments are made.
However, if finances allow – particularly bearing in mind the support available to business through the Coronavirus Job Retention Scheme, support grants and business interruption loan scheme – it would be worth bearing in mind if the event organiser wants to rearrange as soon as restrictions are fully lifted and still want to use your services.
Reaching an agreement that secures their business later is best if possible – you may find that such an agreement is more profitable than insisting on payment of what is likely to be a fraction of the amount that would be payable if the event goes ahead later in the year or indeed next year.