When lightning strikes: Impact of the pandemic on contractual obligations
By Treena Hein
Contract law has long granted exceptions for “acts of God”...but does lockdown count?
By Treena Hein
As everyone in private industry is aware, the challenges of the pandemic for businesses have been numerous. Among the biggest? Safeguarding employees, restrictions on business activities, general economic constriction and uncertainty about the future.
However, for those in the glass and construction industries, COVID-19 also has raised the spectre of legal disputes related to delays in contract completion. Timelines are being hampered by a number of factors, chiefly stringent biosecurity protocols.
This has certainly been the case for Cascadia Windows and Doors of Langley, B.C. “Physical distancing requirements are contributing to a reduction in productivity,” reports president Mike Battistel. “When workers need to ride a man-hoist up the highrise tower to start working, there are only four people allowed in the hoist at the same time, compared to the 20-person maximum of normal times. It is great to see these measures being taken on the sites to help reduce the spread of COVID-19, but unfortunately, it will inherently result in project completions taking longer.” Battistel adds that some clients have asked him to postpone window shipments for a few weeks until sites are ready to receive them.
Contract completion – and possible legal liability – is an industry-wide concern, according to the Architectural Glass and Metal Contractors Association (AGMCA, which has represented unionized glazing contractors of Ontario since 1979). Executive director Noel Marsella notes that because general contractors are liable for meeting deadlines, they are pressuring their subcontractors (AGMCA members) to keep working at the pace required. Some AGMCA members have been receiving letters that refer to penalties associated with delays. In April, the organization (as part of a larger industry group of Ontario construction associations) called on all its members to send emailed letters to the government, requesting exemption from liability for project delays due to COVID-19.
Contract completion in light of COVID-19 centres on something called the force majeure clause (FM for short). Typically found in construction contracts, it discharges the parties from meeting the contract obligations, or allows for suspension of these obligations, due to unforeseen and uncontrollable events.
Lampros Stougiannos and Erica Shadeed have been advising clients on the numerous issues raised by the pandemic in recent weeks, and note that while FM clauses differ in wording, FM events are generally defined as beyond a party’s reasonable foresight and/or control, and which render performance outlined in the contract impossible. Typical terms used in an FM clause include ‘unforeseeability,’ ‘irresistibility,’ ‘acts of God,’ and ‘events beyond a party’s reasonable control,’ but FM clauses also can include a list of example events such as natural disasters, pandemics and government-decreed stop-work orders.
Stougiannos and Shadeed (respectively a partner and lawyer at the Montreal offices of global law firm Dentons) recently wrote an article about FM in Quebec, noting that in that province, even if contracts don’t contain FM clauses, parties may have recourse to the concept of FM that exists in Quebec’s Civil Code. However, if there is no FM clause in your contract in Quebec, similarly to demonstrating that FM exists in any dispute, you have to prove that the event is irresistible, unforeseeable and exterior to your organization and its control.
Stougiannos and Shadeed also note that many contracts include provisions allowing one or both parties to terminate their agreement following the occurrence of a FM event that continues for a specified number of days or months. “At the time the contract was drafted,” they explain, “such a possibility was likely considered by the parties to be quite remote. However, given the circumstances surrounding COVID-19, that may no longer be the case.”
They mention that contractors should provide notice to the other party in their contract if the performance of their obligations has been, or may be, impacted by COVID-19 – whether the contract calls for it or not. They add that “Given the ongoing nature of the COVID-19 pandemic and the possibility that additional or differing measures may be taken by the government in this regard, parties should consider reserving their rights with respect to the impact of COVID-19 in order to ensure they can benefit fully from any relief once the pandemic has ended and governmental measures rescinded.”
Stougiannos’ and Shadeed’s best piece of advice for contractors? “Read your contracts and speak with your lawyer. The impact of COVID-19 may allow parties to claim the occurrence of a FM or to seek forms of relief for things like increased costs. It is important to understand what your rights and remedies are. In addition, many contracts require parties to provide notice to the other party before a specific deadline if they are claiming some sort of relief. If you miss the deadline you could lose your rights, so carefully reviewing your agreements is critical.”
As is the case with everyone else, Stougiannos and Shadeed cannot be sure if there will be many actual legal disputes this year stemming from the pandemic, or if everyone will work it out without legal action. “Many parties will undoubtedly seek to amicably address the impact COVID-19 may be having on their contracts,” they say. “However, there will be many cases where parties will simply not be able to agree for a variety of reasons and will instead choose to have the matter settled by arbitration or by the courts. It really will depend on what the impact is, what their contract says, and how much flexibility both parties have to offer concessions without compromising their business.”
Gerry Argento, a partner based at the Montreal office of Miller Thomson law firm, has also had inquiries regarding FM clauses. As Stougiannos and Shadeed do, he advises contractors to carefully read their contracts, consult their lawyers, and “in addition, document and keep good records, be sure to comply with any notice requirements and keep lines of communication open.”
Comments from industry members
We contacted several glass firms in late April to canvass the situation. While AGMCA board member John Bastedo (vice president of National Contract Glazing in Ottawa) says his firm hasn’t had to deal with any contract issues so far, another board member hasn’t been so fortunate.
“I had a project where my installers were concerned about the limited space on the site and the number of men working there from various trades – about a hundred – and my men refused to work and chose to stay home for their safety,” explains Tony Menecola, president of Applewood Glass in Mississauga, Ont. “The project manager for the general contractor called me and told me if I didn’t have men back on site the next day that he would have no choice but to send me a notice of default for failure to adhere to the schedule. He also assured me that they had implemented safety screening of all workers and had added hand-sanitizing stations throughout the site. My men reluctantly returned to work. The site was shut down as ‘non-essential’ a few weeks later.”
Menecola has not had a lawyer look into any contracts, but says he’s alerted his general contractors that there may be delays on his end due to the pandemic.
The situation has been similar for another AGMCA board member, Tim Isaak, owner of Peninsula Glass in Welland, Ont. As of late April, he had informed contractors there would be delays due to COVID-19 and had not consulted a lawyer about contracts nor received notice of possible penalties – but he’s “very concerned” this will become an issue during the summer.
“This is a very slippery slope,” he explains. “Projects are delayed because of the stoppage by the government. Our supplies have been focusing on projects that have been deemed essential. We have had to make the choice to place orders on hold or have them produced and shipped. Once they are shipped, the suppliers expect payment. But we cannot access the job sites. However, once things open up the suppliers will be swamped with orders and the projects will be delayed by that as well.”
“Is this a COVID-19 delay?” he asks. “Really it is. But will it be viewed that way by the contractors and the lawyers? For that we will need to wait and see.”
From his big-picture view, Marcella reported that by May 8 the government had not yet interceded with any legislation relating to project delays. “Our members are documenting any and all COVID-19-related delay concerns on a daily basis,” he says, “and are hoping that if government does not step in that they will be met with a degree of flexibility and reasonableness by owners, general contractors and, if it gets that far, the judicial system.”
Marcella describes AGMCA member-contractors as an “inherently a resilient and optimistic group” which is now starting to pivot its attention to preparing to restart the industry. “Clearly it will not be business as usual for a long time,” he says, “and our members will be trying to balance their commitments to their clients, suppliers, landlords, and above all, their valuable employees.”