Navigating the legal implications of event cancellations
As businesses adjust to the restrictions the UK Government has placed on the country, NewcastleGateshead Initiative's (NGI) Finlay Magowan put some of the legal questions on event managers' minds to Colin Hewitt, Partner – Head of Commercial at Ward Hadaway.
Finlay: Many businesses will unfortunately already have had to cancel events and contracts and many more will be considering doing so in the coming months. How does a cancellation due to coronavirus differ from other event cancellations?
Colin: In essence, a cancellation due to coronavirus is no different from any other situation. You need to establish the reasons for cancelling an event and consider whether there is provision in the contract giving a right to cancel in particular circumstances. If there is no provision, it needs to be decided whether the contract has become impossible to perform – for example, because we are now been told by the government not to have gatherings of more than two people.
One difference is that the new Coronavirus Act (which received Royal Assent on 25 March) bans large gatherings and has also introduced other measures around health and safety which may affect the performance of contracts. This means a contract may now be impossible to perform, rather than just difficult and ultimately could lead to the ability to terminate a contract.
Finlay: A lot of people will be hearing the phrase force majeure – can you explain what it means with reference to events?
Colin: Force majeure is a strictly contractual concept; it doesn’t automatically exist unless it is written into a contract. A force majeure clause provides solutions when it becomes difficult to perform a contract – it can be quite specific or very general. At it’s simplest, it excuses a party from performance of their obligations, such as the delivery of goods or services but can sometimes have an escalation process which may end in termination of the contact. In larger contracts, it may be set out who should be obliged to do what, where a contract becomes difficult or impossible to fulfil. In certain contracts, it might state, for example, that the parties must meet and agree on an alternative which is acceptable for all.
Finlay: What are event organisers legally obliged to do if they cancel an event?
Colin: That very much depends on the basis of the cancellation and whether you are dealing with consumers or commercial contracts. Obligations should, in theory, be set out clearly in writing within a contract. As a lawyer, I am bound to say this! But talking through a contract and the possible outcomes at the start of the process makes it much clearer from a legal point of view.
Consumers are given a great deal more protection than commercial contracts which are negotiated between parties. A clause may be deemed unreasonable in a consumer contract but be perfectly acceptable in a commercial contract. For example, any contract which allows a contracting party to take money from a consumer without delivering the specified level of performance would be unfair. In general, you would be in a much better position to get your money back if you were a consumer than you would if you were a commercial contracting partner.
Finlay: One of the first things businesses will consider is how to recoup money from a cancellation. Will event insurance be valid?
Colin: Unfortunately, it does depend on the situation - insurance contracts are often very complicated and have a lot of exclusions. An event insurance policy could protect you in the case of a cancellation, but it will be important to look at the details of the contract. Insurance policies often have exclusions written within them and it may be judged that the current situation is classed as ‘exceptional’ and will not be covered. Recently an insurer reportedly denied cover for losses arising from illness because the cover only related to illness arising on the premises.
Finlay: What are you advising people to do from a moral standpoint?
Colin: It’s sometimes hard to think about a moral standpoint when looking at a contract but we are always looking for a practical solution. It’s important to identify the options and talk through the consequences, both short-term and long-term with the other party. In these uncertain times, we must recognise that everyone is in the same boat and actions now might have lasting consequences (good or bad) when this is all over. If you can be seen to be reasonable and fair, your reputation can be enhanced and commercial relationships can be strengthened.
You can listen to the interview in full as a podcast and NGI has lots more information about business and tourism sector support through COVID-19.
Colin Hewitt is Partner – Head of Commercial at law firm Ward Hadaway, which also has lots more coronavirus legal insights.