Contract performance in difficult times: An international perspective

Nathan Platt: Hi everybody. Wanted to take a chance to welcome you to today's program. My name is Nathan Platt. I am the Western Pennsylvania Association of Corporate Counsel Vice President of Programming. I am also the President Elect for 2021.

I want to thank everybody for participating remotely. I know that the past few months' have been challenging for a lot of our company clients and our friends, colleagues and families. So I want to take a moment just to acknowledge that and thank everybody for doing the jobs that we do as counsel who try to give our clients great advice during the normal and sometimes during the abnormal or the new.

Today we have a great program. I am really excited about hearing from our presenters. The Gowling WLG law firm. It is an international law firm that is a sponsor of the Western Pennsylvania chapter. They have put together a program on force majeure topics from an international perspective.

They have got speakers lined up from China, the UK and Canada. We are expanding, really, across the globe right now. This is a worldwide topic, a worldwide pandemic and this is very timely for all of our companies that we represent.

Couple of housekeeping items, just real quick before the panellists and presenters start. You should have received, in your email, a CLE registration form. This is a typical form like we normally have for our programs. One where you sign it and fill it out and maybe do a commentary on how the program went.

As part of our check-ins, since we are doing things 'live', we will be giving out three codes during the presentation. So I will be jumping back in and letting the group know that there is a code coming. If you can write those codes down, that would be good because when you fill out your CLE form, there is a spot on the form that you sign and submit, where you will write the code down. That is how we track your attendance.

So, with that said, if you have not got a form emailed to you or have forgotten your spam account, you can always email Barb at the Association of Corporate Counsel email and we will get you that form. Just try to write down the code and let us know if you have any problems.

With that, I want to just say again, thank you to the Gowling WLG law firm and the folks that have put together this presentation. It is going to be a great topic and I am looking forward to hearing from it. I am going to sign off now and let the speakers start and then I will rejoin back in along the way to hand out some more codes. So, thank you very much and just to start things off, the first code for your CLE form is 6783. Code one is 6783. Thank you. I will turn it over to Gowling WLG.

Catherine Naylor: Thank you Nate for that introduction. We are very grateful to be here today, albeit it remotely in these strange times. My name is Catherine Naylor. I am a commercial litigator in Gowling's London office. I help clients to navigate through disputes - corporate commercial disputes including contractual disputes - which is what we are going to be talking about today.

I am joined by Thomas Timmins, who is a partner from Canada and who is going to speak all matters Canadian and Vivian Desmonts, who is going to talk from a China perspective. So, Tom/Vivian over to you to introduce yourselves.

Thomas Timmins: Go ahead, Vivian.

Vivian Desmonts: Hello everyone. I am Vivian Desmonts. I am a European lawyer, a French lawyer. Been practising in mainland China for almost 20 years. I am working from our Beijing office. I am a partner at Gowling WLG and I am more of a corporate and casual trade lawyer. So, working regularly on cross-border transactions between North America and mainland China. Thank you.

Thomas: Hi everyone. Thanks Cat. Thanks Vivian and thank you Nathan and everyone in the Law Association of Western Pennsylvania for having us. My name is Tom Timmins, as Cat mentioned. I sit in Toronto, Canada and I lead the energy group at Gowling WLG Canada. I am also heavily involved in actually technically nearer the China energy in Canada as well and we have been dealing with force majeure and international product challenges since late January, as I am sure many of you have as well. So, back to you Cat.

Catherine: Thanks Tom. Actually I think the person who is going to start off on the subject of force majeure is Vivian.

Vivian: It is a pleasure, thanks to everyone. So, force majeure actually as a French lawyer I am glad to confirm it actually originates from French law which is, as you know, French is a civil law jurisdiction and mainland China where I have been working since 20 years is also civil law jurisdiction. It also recognises this legal concept of force majeure. So, legally, in Chinese law, but also in most civil law jurisdiction, the law and contract law actually provides for a definition of force majeure and then it provides for at least three legal conditions for in the event we recognise as force majeure under Chinese law.

Basically, you have the first condition whereby a force majeure event, in order to be recognised by courts in China, force majeure it is an objective circumstances that cannot be forced in by the parties, where they have completed the contract.

The second condition provided by the law is that this kind of event cannot be avoided by the parties, it must be external to them.

Then, the most important condition, the third one - is that this event cannot be overcome by the parties.

You can imagine that recently COVID-19 pandemic and especially the Chinese government there were measures on lockdowns and shutting down factories since February, in China. This was naturally an event that could be considered as a force majeure event and the party which was prevent from performing its contractual obligation, could claim force majeure event and either try to terminate the contract with its counterpart or to have its obligation partly waived.

We have seen a lot of cases since February in multiple sectors where, especially Chinese suppliers, negotiated and claimed force majeure against their own clients abroad and claiming that it would prevent them objectively from performing their contract or to respect the delays and we have seen many clients in North America or in Europe, receiving notifications from their Chinese counterparts and sometimes even official documents from the Chamber of Commerce or the CCPIT in China, which recognises that COVID-19 was a force majeure event.

However, force majeure in Chinese law in practice is not a free pass for a party to not respect its contract and try to early terminate without any liability - no. Under Chinese law and contract law, it is provided that the party suffering from force majeure event must be able to prove how this force majeure event actually prevented the party from performing its contractual obligations.

And then what we have here in practice and in most contracts also, generally international trade contracts will also provide for more details in addition to the law for defining a force majeure event and very often, it will depend on the party in the force majeure event must get formal evidence from the a notary public in China - not just a paper from the Chamber of Commerce.

In practice, we had to check the contracts and since this event there is also a lot of parties and companies abroad that are revising their contractual clauses, especially force majeure events and to plan for this procedure later on.

I think then we can switch also to the UK to see how a force majeure event is recognised under UK law.

Thomas:I think I am actually going to speak. So, the Canadian law will, of course, be very familiar to most of the lawyers on the call. There are some distinctions and I am going to go through some of the basic principles.

The courts in Canada - and remember, Canada is not too different from the United States, is a federal state so you are dealing with - in some cases - thirteen different jurisdictions plus federal courts and of course, the supreme court.

The law in Canada is, fortunately, it is one of those rare instances where it is actually fairly consistent across the country. Unfortunately, it is actually somewhat different in Canada than it is in the United States.

Just to go back, the courts are going to take a look at a few concepts. These are concepts that if you are drafting force majeure or FM clauses, these are concepts that you will very likely address when you are drafting.

We are going to first look at qualification. Whether or not the event qualifies as a force majeure event under the contract. Your perspective on that, of course, is going to vary depending on who you are acting for. So, in the early days of COVID-19, back when we were still calling it the Corona virus and buying toilet paper, we found ourselves in the position where we - acting for one particular client - where we said, well actually this is not a pandemic yet, it is an epidemic. We have not seen the World Health Organisation take a position on this yet. Etc. etc. So the question of qualification.

Then, what was a force majeure event in January or in February might no longer be a force majeure event in June. The world has changed, quite a bit and we have actually, to a certain extent, this might surprise some of you who are working in your upstairs offices at home - we have gotten used to Corona virus or COVID-19 and we are actually - and of course in North America and the United States we are dealing with other potential force majeure events that have become quite significant. What qualifies as a force majeure event of course is very relevant.

Then you are going to be looking at the question of 'what standard' and this is where Canadian law differs from the U.S. law. What standard does the performing party have to meet and whether we are talking about an impossible performance standard or whether the concept of commercial reasonability comes in.

Then we are talking about foreseeability. Could you have foreseen this? Looking back at SARS and the MURS virus and all the various viruses that have come through the world economy over the past 10, 20, 25 years. Looking back, we can actually say, actually COVID-19 actually was foreseeable. You could make that argument, particularly in Asia where many of the Asian economies were prepared for COVID-19. Much more so than we were in North American.

In the final concept that we look at in Canadian law, is the remedy. Okay, fine. It qualifies - okay, fine. The performance could not have been executed, now what? What does that mean? Do we cancel the contract or is there some sort of a remedy. So the courts are looking at those types of concepts.

Leading case law in Canada? Really, the key cases - a company called the Atlantic Paper Stock case?& That is a case where in Canada we came up with what we call the impossible performance standard. Where the party claiming force majeure needs to be able to prove to the court that it is not only impractical, but it is actually impossible for them to perform and that is where Canadian law becomes quite relevant.

Other cases? World Land, Adcore, Domcar are all important cases. Another case that is important is, really the only case that we have been able to find where a COVID or Corona related virus comes into play and that is a CRTC case that is locally known as the SARS decision, where one of our regulatory bodies in Canada actually grappled with the question of whether a virus could cause a force majeure event. Over to you Cat.

Catherine: Thanks Tom.& Am I right Tom, in thinking that in Canada force majeure is not exclusively a creature of a contract? Or is that not the case?

Thomas: No, that is correct. We have force majeure at common law. So if it is excluded from your contract, you can still go to the court and claim force majeure and of course it is a species of contract frustration and they are on a spectrum in Canada but if you do not happen to have an FM clause in your contract, do not give up hope, although even if you do have an FM clause in your contract and you are the party trying to seek/excuse performance, it is an uphill battle.

Catherine: Yeah, okay. So that is slightly different - well, the uphill battle I think is very similar and I can come onto that in a second, force majeure is not an easy claim to make in England, although I have to say it is easier than frustration which we will come onto in a moment.

By contrast, to the position in Canada and in China and in France, in fact, and as Vivian outlined, force majeure is exclusively a creature of the contract in England and so it does not matter which side of the fence you are on - whether you are the, if I can call it ' the contract breaker', the person who wants to get out of their obligations. Or the person who is on the receiving end of the notice, someone saying they do not want to perform any more, the force majeure clause has to be in the contract.

If there is no force majeure clause in the contract, you have no possibility whatsoever of relying on force majeure so the starting point in any force majeure argument in practical terms - it sounds obvious - is to dust off the contract. What does the contract say? Because that is what will govern what will happen.

As you said, Tom in practical terms in England, the first thing you would do is decide, well has there been a force majeure event. That requires you to look at what has happened in fact and what the contract itself says.

If it is a closed list, obviously the circumstance which has occurred has to be in that list and obviously you can have arguments about whether something is a pandemic or an epidemic, but if you are looking at a pandemic or an epidemic and neither of those are in there then you will struggle to rely on force majeure in a closed list.

But quite often, particularly in commercial contracts, you will see a catch-all provision. There might be, at the end of a closed list, it will say 'events or any other event outside the reasonable control of the parties'. And so, even if - certainly in England - even if your specific event is not listed out, if you have a catch-all provision, any other event outside the reasonable control - provided it is outside your reasonable control what has happened - then it would potentially constitute a force majeure event.

So once you have decided, okay it fits within the definition, it is a force majeure event the next thing to think about is, what has been the event of a force majeure event. Has it prevented performance completely or has it simply impeded performance/made it more difficult.

Again, you have to look to the words of the contract. If the contract says, force majeure event has to prevent performance, that is a very high standard as Tom alluded to - it is akin to impossible. If you could perform the contract in a different way but it would just become more expensive, that is not sufficient to meet the standard of prevention.

You might have wordings which talks about impeding or delaying or hindering - something similar and again it is very fact specific. But those sorts of words make it slightly easier, I suppose to rely on force majeure than if you have the word prevent, because that is effectively an impossibility.

ou have to look at the clause and you have to look at what has happened. Make a judgment call as to whether you can rely on it. I think there is a couple of other practical points on force majeure in England.

The first is that you need to check your force majeure clauses to whether or not it requires some form of notice to be given. Some clauses are silent as to notice, others require notice to be given to the other party - if you are proposing to rely on force majeure clause that is.

One of the possibility arises that performance might be difficult or impossible and sometimes a specified time period is included in the contract. Other times it may say you have to give notice promptly but again, in England because force majeure is a tricky claim to make because courts prefer parties to stick to their bargain where they can, the notice provisions will be construed strictly.

So if you do not give the require notice or you do not give it in the form required so it has to be in writing. For instance delivered by hand or whatever the case may be then you might find, and it may sound harsh, but you might find that you would be prevented from relying on the clause at all.

The second practical point is to think about whether there is another way that you might be able to perform a contract. So there may be some express provision in the contract to that effect but, even if there is not, I think the English Courts expect parties to use their reasonable endeavours to try and comply with what they promised to do if there is an alternative way of performing, but for instance and I do not want to keep talking about COVID-19, but if the government has decreed you may not attend your premises there is nothing you can do about that. There is no alternative way if you are supplying goods that are there, there is no alternative way of performing.

Catherine: I think the last practical point to check again, Tom you alluded to this is what is the remedy provided for in the contract and the force majeure clause. Does it give a right to terminate for instance. Does it give a right to terminate if the force majeure events subsist for a period of time. It is really important to look at that because actually you may just want to be excused for a short period of time, but you really do not want the contract determined, you do not want to give advice to invite to terminate. So these are the sort of things that you would think about before you consider force majeure.

Nate I wonder if now, before we move onto frustration Nate, I wonder if now is a good time to shout out your second CLE code?

Nathan: I think it would be so let me start my video and I can reappear for the audience. So the second code and do not call bingo out if you win this one but it is 8521 and that second code is 8521 and then just to kind of remind the audience there should be a Q&A component where you can submit questions to the panellists along the way on your zoom interface. We are going to have a questions section at the end but if you are thinking of things and you want to submit it to Gowling WLG that would be fine. We can may be attempt to get through as many of them as I can during the question section and then we can always put people in touch with Gowling WLG following the programme. So that was code two, I am going to disappear again.

Catherine: Thanks Nate. So I am going to move on to frustration which is the doctrine in England that you would be forced to rely on if there was no force majeure in your contract because there is no common law force majeure doctrine here.

So by contrast with force majeure frustration is not a contractual remedy so you can only rely on it if there is no force majeure clause in your contract. What you could not do is say well there is a proposed list of force majeure events, the circumstance that has arisen is not included in that list so I can rely on frustration, well you cannot.

Frustration, it is what happens. The law will step in if effectively all else fails and for that reason it is an extremely high standard to meet in England. In essence, it operates when something happens that is outside the control of the parties but which makes the performance impossible or so radically different from that which they promised to do that it automatically terminates the contract.

So it is a pretty draconian high stakes decision and the effect of it is, is that the parties are released immediately from any future performance, any obligation and in England, as I think the position is elsewhere. There are a series of complex rules about how you deal with compensating parties who have for instance, part performed or they have incurred costs in preparing to perform the contract.

Now I mentioned impossibility again in the context of force majeure and in the context of frustration, again it really does mean impossible, it does not mean more difficult or that performing would be more expensive, it means impossible. When we talk about radically different, I do not just mean harder or of a different scale, it is not about hardship which we will come on to in a moment. It is about there being an event a frustrating event that goes to the heart of the contract that turns the obligation into something which is different from that that you promised to do. Now I know that is quite a dry statement of the law and much easier to understand where there is an example and I think Tom is going to talk about some practical examples in a moment which will hopefully illustrate a little bit about what I mean.

Hopefully you can see from that that in England at least it is really difficult to get an argument based on frustration off the ground. It is a high force majeure and there are lots of cases in England where frustration has been allowed by the Courts but not exclusively but some of those are very old indeed, they go back to the 19^th Century.

More recently the Courts have been increasingly reluctant to find that an event of frustration has occurred and I think the prevailing wisdom is particularly with two commercial counterparties is that if you wanted to provide for what would happen to your obligations in the event of something outside your control and confirm, then you ought to have bargained for it ought to have been in the contract.

Now I do not want to dwell on specific cases but I thought I would just mention a relatively recent case on frustration because, we don't have that many as it is such a high bar, and because we have not talked about it for a little while, Brexit.

It is a Brexit related case and in that case the European Medicines Agency took a 25 year lease of the building in High Canary Wharf in London and it was so far as they were concerned they were a European Medicines Agency, important that they were within the EU. Unfortunately, when England voted to leave the EU they wanted to extricate themselves from their lease and they sought to rely on frustration to do so. They said that the decision to leave the EU, it was circumstances outside of their control and it was a frustrating event.

Unfortunately for them Canary Wharf resisted and when it went to Court the Court went with the Landlord and said, actually do you know what, the lease provides for all sorts of rights so you have a right to sub-let for instance, you have a right to assign the lease and in those circumstances frustration does not arise because it is not impossible. You could perform, you could sub-let.

Now I should add the EMA did get leave to appeal that decision but unfortunately they settled before it was ever tested in a higher Court but I think you can see from that that it really is a high bar and for that reason you can see why it is a high stakes decision. If you make the wrong call and seek to rely on frustration and treat the contract as immediately at an end you put yourself suddenly, if that is wrong you are the one who is in breach of contract. In cases, not the Canary Wharf case but lots of commercial cases I am sure we all deal with all the time, you could find yourself on the receiving end of potentially quite a significant damages from the other side.

So Tom over to you to hopefully bring to life some of the more dry topics I have mentioned.

Thomas: Thanks Cat. Vivian I am actually just going to pass it to you just to give the prospective in China if that is okay and then I will do my best to make it interesting with my examples but do not count on it. Over to you Vivian.

Vivian: For the doctoring of frustration in China, mainland China but actually also understanding the many civil law jurisdiction it is not recognised at all by the contract law. So it is totally irrelevant on the basis of frustration or the fact that the purpose of the contract cannot be fulfilled so I suppose it is back to you Tom.

Thomas: Thanks Vivian. So if you do not have an FM clause in your contract in Canada you are back into the world of frustration.& The seminal case on frustration is going to be familiar to virtually everyone on the call, when I say on the phone I mean on the zoom call who went to law school in a common law jurisdiction and that is Taylor v Cauldwell 1863 Blackburn.

I think it is the best example to give because there you had a case where a music theatre was contracted in order to host a concert in 1863 and that theatre burned down and so it became impossible to host a concert, a music concert in the theatre which no longer existed. That is a perfect example, it is the classic example of how frustration forms a contract.

Now as Cat mentioned in terms of the Canary Wharf case that can be worded around, I am sitting today in a building, a vast building in downtown Toronto which is virtually empty but our lease still stands. The building owner here still has an obligation to keep the building open, keep the lights on, keep the fax systems working. Why? Because we have contracted for that as lesser works.

So the best example is where the facility to perform the contact has been completely obliterated or removed so government announcements may or may not meet that threshold. War, when we get into war and civil unrest we get closer to that threshold. So a lot of the civil law doctrine emerged in the 20^th Century came out of the results of WW1 and WW2 and particular in Germany it came out of the consequences of hyperinflation in the 1920s and I will talk a little bit about that when I get into the doctrine of hardship.

When you are thinking about frustration I completely would reiterate what Cat and Vivian said in terms of a very high bar and very hard to meet. You really have to have really good facts on your side if you are the party who is seeking to allege or successfully allege that and get the Court on your side. It is going to come down to really good facts and having been on both sides of that in recent months I can tell you it's a tough part to meet.

Back to you Cat I believe. Over to you Vivian we are going to discuss hardship.

Vivian: Yes thanks Tom. So as I have mentioned in China we do not have the legal concept of frustration however if a party is in difficult situation and cannot materially perform its contract then if force majeure does not work we may consider another legal basis in China which is hardship. Contrary to force majeure, Chinese contract law 1999 or the law on the dual principals of civil law do not provide for legal definition of hardship. However in practice especially when it comes to international trade operations in practice we would draft the hardship clause in the contracts whereby if a party is suddenly under hardship and contractually we would define that by the fact that there has been an unforeseen and a major change of circumstances which renders the contract obviously unfair to a party. Then the parties will need to renegotiate some adjustments to the contract.

Vivian: Sometimes also we would go into more detail in the hardship clause of the contract. We would provide for example some obligations of business continuity if there was a major change of circumstances which would render the contract not possible to perform. So in practice how is it recognised, in China we do not talk about hardship we talk more about the rupture of the principal of fairness. So this is based on civil law and the Supreme People's Court has recognised this kind of special situation which is not force majeure it is really the fact that there is a major change of circumstances and would render the contract totally unfair for parties.

So it is really up to a Judge or an arbitrator in case of international arbitration with some commissions we have here in the region. For example here in China with the CPAC or Hong Kong IAC, the International Chamber of Commerce, also has an arbitration commission here in China in practice when parties cannot renegotiate the contact because of this kind of hardship event it is up to the Judge or Arbitrator to see if it is really unfair to the party with the hardship.

Cat or Tom did you want to elaborate a little bit more on hardship.

Sure I can give you the Canadian perspective. I guess the way to look at this is really to ask yourself, okay circumstances have changed, is there a duty on the parties or one of the parties to renegotiate and then further will the Court step in. If you think about this and I think this is one of those cases where American lawyers and Canadian lawyers are going to be quite similar. Are you going to be able to get a Judge, and think about who Judges are, they are having a hard time right now. Are they really going to step into your contract and want to sort out the differences between the parties and like work through what should be the contract terms in the context of commercial realities. I tell you in Canada you are just not going to be able to get the Court to do that.

Thomas: The doctrine of hardship has not really made the transition into general Canadian law. There was a recent case, and we are lucky to have a recent decision. Churchill Falls Quebec 2016 decision that examined this, there was one dissent, there was a supreme Court decision, there was one dissent in opinion on that case. Almost unanimously the Court came to the position that the doctrine of hardship did not exist at Quebec law.

In that case, it is an interesting case and if you are interested in any of the history of power production in Canada that is a case regarding a 65 year long power purchase agreement between the province of Quebec and the province of Newfoundland in Canada which has resulted in some public acrimony and dispute over the years.

The question really if the circumstances have changed is there a duty to renegotiate. At common law in Canada and civil law in Quebec I would say not. That is I think different than some of the concepts in continental Europe which is Switzerland and in France and Germany where there are concepts arising out of 20^th Century circumstances where there may be a duty to negotiate or where the Court may step in. You are going to have a hard time dealing with the Court in Canada.

Over to you Cat.

Catherine: I think the position in England is very similar we do not have a separate of doctrine of hardship. In fact the way, if we are talking about hardship clauses here, we are really talking about a sub-set of a force majeure clause. So again it is going back to the contract and dusting off the contract does the contract expressly provide that in circumstances where there is difficulty in performing there is a right, perhaps not a duty but certainly a right to renegotiate or can you, is there an express amendment right. It would normally and typically in England it would normally come somewhere under the heading force majeure so it would be one particular paragraph or sub-clause of your force majeure clause you would not, under common law you would not get an argument off the ground in England either because it is just not recognised outside the contract. So you need to go to the contract and if the contract does not contain some kind of amendment right or right to renegotiate in circumstances of hardship then I am afraid in England it is probably the end of the road. Again you are looking to fall back on frustration which is the common law. Very much option of last resort but it is there and it is available.

So in terms of what we have learned and the future, Tom you alluded earlier to, if you were drafting a clause in January and you were drafting a clause today what would you do differently? So what makes a good force majeure clause and what makes a bad one?

Thomas: Well thanks Cat do you have 24 hours to talk about that?

Catherine: In two minutes.

Thomas: In two minutes or less. In terms of takeaways one of the first things I would say before we get to the idea of drafting. For those of you, particularly in-house Counsel but if you are in any way kind of directly working with commercial folks in businesses I would say the first thing to do, and you might want to write this down as take action.

So if you are receiving a force majeure notification and what you often see is a polite email or a letter even that is couched almost as a force majeure. It is kind a 'clausy' force majeure claim, you need to take action, you need to note when that was received and how it was received. You need to take a look at your notice provision in your contract. Alright, and you need to keep the commercial context and the dual political context in mind. Force majeure clauses are really hard to rely upon so if you are seeking to rely upon them you need to act. Then you are going to be going through kind of that whole step process and I really want to emphasise time is not your friend here.

The other thing that is happening well if something is sitting on your desk or in your inbox on your computer more likely. The world is changing and world events are changing so the way which we perceived COVID-19 in February and in March is very different than we perceive it now in June. So things are evolving and things are like this is perceptions and I want to say, I would even go as far as to say judicial perceptions of COVID-19 are very different to now as they may have been in March and April.

So that is kind of the first key message I would give is take action. Make sure you would start to plan ahead for disruption and then the other thing I think we took away from this and we had a webinar I guess it was in March on this topic. We had about 700 people on the webinar which for Canada is incredible, I probably would not have been able to get three people in a room to discuss force majeure last year and so it has become quite a topic of a lot of interest.

The other piece we did, we wrote an article about writing, re-writing our force majeure provision. Kind of the best thing we have seen has been the ICC standard clause has come out. The International Chamber of Commerce standard clause that has come out. We did an article on that. The clause in our mind is not perfect it is good starting place for drafting purposes. We wrote a piece kind of providing our input on that commentary on that article and one of the things we liked the best about that article is that if you think about it and as of today's date what is happening in the world. COVID-19 is important there is also Geo political tensions arising and trade disputes arising. Not just between the US and China but between a lot of different countries and a lot of different jurisdictions and then of course the civil unrest in the United States and in Canada and in other parts of the world.

So the world of course is continuing to move along. What does that mean to your clause. I have become a really bit fan of fraud general language in clauses that can capture. So you are probably not going to be able to list all future world events. In fact you know you are not going to be able to but capturing some themes and this is what I think the ICC clause does really well. Capturing some things and clearly state that ask for that threshold as to when an event crosses the mind for becoming a force majeure clause to. Sorry from becoming just an event becoming an actual force majeure event is I think a really good concept.

The other thing I would leave with people in terms of hindsight is make sure your choice of law. We have noticed that there are differences in law, make sure your choice of law provision aligns and works with force majeure. So if you were going to be relying on the law of New York or the law of Pennsylvania once the law in relation to force majeure and how does it read and how is it going to be interpreted and you know the law varies from in the United States from state to state, within Canada from province to province there are slight variations. If you cross the Atlantic to the UK and into Europe and then in China or the law of Hong Kong SAR, China (hereinafter referred to as "Hong Kong") or Singapore there are a lot of differences there that really come to bear on force majeure clause.

So going forward we all really need to be really conscious of that and how those clauses including our notice clauses which you will have thought that a notice clause in our contract which are typically boiler plate become quite important. So there is my two cents Cat.

Catherine: Vivian we are conscious of time but did you have any lessons learned.

Vivian: Based on that practice, share experience of our clients. Doing business in China, drafting force majeure clause or thinking about how to enforce the contract during difficult times it really is quite detailed in the contract and the procedure to gather the evidence, the proof of force majeure event or even hardship situation. So this can really require from the other party that provides you know for example, Certificate by Notary Public in China this is really the best proof that you we can get and then you would provide for certain delay to provide the certificate or just the money. Then I would also advise to provide, while depending on the projects, it would be good also to provide for business continuity clause just after the force majeure clause.

As Tom mentioned earlier we need to plan ahead for disruptions, it is not just COVID-19 it is as mentioned earlier, briefly, the US China trade war, there can be so many events happening in the years to come. So you need to plan ahead and try to see and provide in the contract what the parties should do when there is this kind of situation happening.

I think my two pennies worth, I will keep it very short. As a dispute lawyer I think the future will hold a significant number of commercial disputes arising as a result of people seeking to rely on force majeure clauses and potentially on frustration. As I said earlier, I think it is a very difficult thing to do, it is a high bar. I think parties are in difficult times are being forced to look at force majeure provisions and decide whether they actually want to give notice under them. If you can get that notice, you look at it and think actually I am not sure a force majeure event has occurred at all. I am not prepared to just accept it.

I think it will remain to be seen whether given the duration of this particular, as Tom said there are all other events in the world, that could well be force majeure but in particular COVID-19. It has been such a lengthy disruptive event it would be interesting to see whether the Courts are ever so slightly more sympathetic that perhaps they would have been before to parties who find themselves in real contractual difficulties as a result. So I guess watch this space from a disputes perspective.

So Nate I think back to you Nate. I think I saw on the Q&A flash up a question about the first CLE code exactly as a starter.

Nathan: We got a couple of other things though, we are going to move into the question and answer phase now.

Okay so the first question that came in, I am just going to read it off to the panellists and you guys can all just way in with your thoughts but.

Nathan: Recognising that force majeure is that specific? Can you please address the general scenario where the main for a parties products or products have been destroyed by COVID-19?  In particular a situation where a party is not required to close its business however due to COVID the customer demand has pretty much just flattened out. Can the party declare force majeure in its raw materials contracts, under the argument that COVID has destroyed the demand for its end products?

Thomas: I can give you some perspective on Canadian law if that is useful. That is going to be a tough case to fight if I am the party trying to say that what I would call a material adverse change in market conditions constitutes a force majeure event while unless I have a material adverse change or a mac clause as we call them in the contract. Purely on the basis of common law the change in market conditions it is going to be really tough and I do not really see force majeure clauses taking that into account in a Canadian context. So in Canada I would say that is going to be quite challenging. The market change and so the type of scenario that has been discussed in some of the seminal Supreme Court cases in Canada where the Supreme Court have given a thumbs down to the party alleging that that constitutes a force majeure event but that is the Canadian context.

Catherine: Well I think the position in England, I am sorry whoever asked the question. I think the position in England would be the same actually. Because what that is in fact, it depends on what the force majeure clause says and as Tom said if there is express provision for that particular event I would be surprised certainly it would not be a standard provision in an English force majeure clause. I think the way the Courts would look at it would be to say your market has fallen away. What that does not mean is it does not create an impossibility for you to buy the raw materials.& You can still buy those raw materials so that you can still perform your side of the bargain. You do not want to any more but you must otherwise you will be in breach of the agreement. I know that sounds very harsh but that is the way the Courts, I think, in England would treat that particular circumstance.

Vivian: In China as a civil law jurisdiction, it would actually be the same result. Especially in civil law jurisdiction contracts, written contracts are most important and we need to respect written contracts. So if it is just a change of mind from one of the parties saying that primarily I cannot sell or resell the products in the US as an increase in price as intended in the beginning when concluding a contract. In China it would not be recognised as a force majeure event. Of course we would basically say well no this kind of reason is not external to both parties it is actually very much related to the intent of one of the parties. So a force majeure event would not work but in case of litigation or dispute here in China you could certainly consider hardship and you know the principle of fairness as mentioned earlier.

Nathan: So what I took from that is you know a very important clause that we may want to be thinking about as an in house Counsel and adding them as fast as possible as the material adverse change in a market conditions clause. That is going to be easier to hang your hat on from a negotiations stand point with the other side than it is to run to Court and have a maybe fact specific force majeure proceeding.

Thomas: Of course it depends Nate, because remember as in-house counsel I would be willing to bet that you have both customers and suppliers so you are kind of looking in two different directions. You do not necessarily need to be consistent looking in those two directions. You might want to have a lot more flexibility with your customers on your own behalf than you might want obviously from your suppliers, you might be top cookie with your suppliers, I expect you are Nate, so.&

Nathan: I try to be. But with a smile on my face.

Thomas: Good good.

Nathan: OK so just before we get into some more questions I am going to take a moment to give out the final third code for the CLE credit. So this is code number three to write down for the audience who are applying for CLE credit and that code is 3564, 3564.

And a few more questions that we have come in as well, let me bring those up and read them off to the group here. So another question that came in from a panellist, an audience member was how often should a corporation change their force majeure clause generally? As more and more scenarios arise in which force majeure may apply, and are any of these clauses could be burdensome, or should force majeure clauses just have a catch all at the end of the clause, as discussed?

Thomas: We might be on you Cat.

Catherine: Sorry.

Thomas: We might be on you.

Catherine: Yeah, strange, sorry about that. I think it is a good question and I think the answer, the lawyer's answer is it really depends. It depends what side of the fence you are on doesn't it, as to whether you may want to rely on a force majeure clause or not, whether you should have the catch all language.

Catherine: I think some kind of catch all language is sensible because as I think Tom said earlier, it is impossible to list a definitive set of all possibly events that could constitute force majeure. The important point I think about catch all provision is that it has to be outside the reasonable control of the parties so it is not a get out of jail free card.

And as to how frequently you may want to dust those down, I think it is good practice to look at your staff under terms and conditions periodically and I think, I would not say, and forgive me if, Tom, or Vivian disagree but I think suggesting to do it on merely kind of time basis, may not be practical. I think just if world events have shifted the needle a little bit, you think you may want to, you may need to look again at what constitutes force majeure, I think probably if there is a big predicting more disputes, if there is a big decision in your jurisdiction on force majeure then you need to look back at your force majeure clause and see whether some amendments are required in light of that decision.

Catherine: But I think just good practice as to the look at your Ts & Cs every so often, but I would not put a time period of every month or every week or every year on it, it depends.

Nathan: So in the news there is some talk of may be like a second wave, and that may be a second wave in the US, it may be a second wave in a European country or an Asian country, should we be thinking about if a second wave happens we can get out of this contract clause?

Catherine: That is interesting, I am sure Tom and Vivian will have some thoughts but it seems to me to be similar to some of the Brexit clauses we were seeing sneaking into contracts where people were trying before the decision was taken as to whether or not the UK would leave the EU. Parties were trying to provide for well what will happen if the decision goes this way? What will happen and trying to contract for it. But it is very difficult to contract for something where you do not know exactly what is going to happen, what the consequences will be.

Catherine: Tom did you have something, you look like you were very keen to add something.

Thomas: Don't get me started. So the ICC clause does a really good job of addressing this. Basically the way it is structured it adds an opening paragraph that says force majeure means the occurrence of an event or circumstance that prevents a party from performing one or more of its contractual obligations where that party proves impediment was beyond its reasonable control, the impediment could not reasonably have been foreseen and the impediment could not reasonably have been avoided. And then it goes on to say, in the absence of proof to the contrary it lists you can list a series of events that would be you know included but not limited to you know your war, riot, civil unrest, currency trade restrictions those types of things so I like that you have got a basket clause that is built into kind of a high concept three point test and then of course in each and every one of those points is that brilliant and wonderful common law word reasonable. Which functions really as a demilitarised zone between the parties so that everyone is a little bit uncertain what the court is going to do and hopefully that keeps them back from the foul line a little bit and hopefully they can resolve their differences without having to go to the courts. So that is my two cents as a contract drafter. Vivian I don't know if you have any thoughts to add on that?

Vivian: It very much depends on when the contract has been concluded. You know if you conclude a new contract now after the first wave of COVID then the second wave of COVID could be considered somehow foreseeable what is not foreseeable is the extent of the Chinese governmental measures you know shutting down factories for how long? Just two or three weeks, is it going to be two or three months? This is not foreseeable whether reasonably or not this is not the question in China is it foreseeable or not during the conclusion of the contract.

Nathan: Ok thanks, another question that came in from our audience participants relates to kind of the leasing space that we are all doing. I'm broadcasting from my blue room in my house so the question comes to this, what about changes to leases for office space? If more people or all people worked from home in a company any way of getting out of these leases? Frustration or purpose? We don't need it anymore? The purposes was to house people in there and it is not necessary or people are recommended to stay home now. I mean any thoughts on that topic?

Catherine: I think in England you would certainly struggle with frustration I think in view of the Canary Wharf case I mentioned. I think it is difficult. I mean we have circumstances at the moment in England where landlords are not able I think to actually evict non-paying tenants. I don't know how long that will go on for but at the moment landlords are facing some difficulties where they have tenants who can't or won't pay but they are not able then to evict them. But I think in terms of frustration it would be very difficult because you know you might be able to assign the lease, you might be able to sub-let and I don't think it is impossible for you to occupy the full period of the lease I think certainly in England I think it would be difficult.

Nathan: Ok so we are stuck in those leases.

Thomas: You know what there is always oh I don't want to say this. What I should say if you look at your business card long enough you can find a spelling mistake right so the there is always a way. The thing about commercial tenancy law is that it is a very mature and well-trodden area probably about a thousand years of case law there, it is a very mature area of the law but and you know what its worth looking at but I think I know a lot of parties are doing that because a lot of companies are pivoting whether they have sublease rights, whether they can let go of the shell company that they used to sign the lease, whether you know they can renegotiate extended provisions things like that. It is something that I know a lot of parties are looking at, in Canada at least and that's you know just on the commercial side. Vivian I am sure you are dealing with the same thing in China?

Vivian: Yes in China it is the same, it is very difficult to get out of a lease contract, even I mean the COVID-19 situation. What we have seen actually in practice since February, is the Chinese Government providing some subsidiaries, many companies are waiting for subsidiaries of the government in Hong Kong. As well also in the current times and for example, in China when the landlord is a state owned enterprise the central government actually ordered that rental for February and March would be totally waived or partly waived depending on the cities, it was because then it was the government ordering all state owned enterprises to waive rental for their tenants but in the private sector you know private landlords generally did not grant any waiver or did not reduce the rentals so what did some companies do? When they were in dire financial situation, they basically early terminated the lease contract in practice in China lease contracts are really relatively short term even for businesses it is like one to three years, sometimes five ok so then some companies basically made the calculation and they say well if I early terminate ok what am I going to pay as penalty is it still better than what you are paying the rental for such a large space for the rest of it.

Nathan: Thanks just keeping with the timing of things we will just do one quick question and I am going to pick from the other ones in here but just is there more room to argue that COVID-19 was a force majeure event or what not a force majeure event?

Vivian: For China I have maybe one quick answer actually, the Supreme People's Court itself published an interpretation in March basically saying there is not the epidemic we should be considered a force majeure event it is more the governmental measures, control measures that were adopted and the fact that factories were basically ordered to close down for unlimited period of time. Back in January or February and then went through March for some parts of China.

Catherine: I think in England it depends what your contract says of course but at the beginning of the new reports in because we were slightly behind in terms of locking people down but in view of some of the reports of other jurisdictions doing so some commentators were suggesting actually if you have a force majeure clause which talks about pandemic or epidemic but actually it is not the pandemic or the epidemic that is causing the force majeure event the force majeure event is actually the government lockdown well in that case I do not think COVID-19 would be a force majeure event. I think probably that softened a little as to how long it has gone on and as I alluded to earlier I think in England if you had pandemic or epidemic in your force majeure clause if you had government lock down I think there would be relatively little sympathy at the suggestion that actually COVID-19 is not a force majeure event in those circumstances.

Nathan: Well I appreciate everybody jumping on, this was a great topic. We did have another just final kind of wrap up question come in from the audience about maybe if we could send out a copy of the article commenting on the ICC model clause that was referenced and we can do that as a follow up to the ICC Western PA membership. The other thing folks as I know we kind of went over a little bit but we have Gowlings folks standing by if you want to reach out to them privately we can make sure that you are connected to Tom or Vivian or Cat if they are not in the jurisdiction that you are thinking about I am sure they have other folks in the regions that you might need help on. We are all trying to figure this out as we go. I never thought we would be going through a pandemic trying to practice law, trying to figure out what the law means and to Tom's point back in the beginning you know force majeure clauses were just kind of like well maybe my building might burn down because of an earthquake or something but I'm not too concerned about but I think now everybody is so again I just want to say thank you very much to the Gowling law firm, Vivian, Thomas, Cat, Joy all the folks who helped put this together it was a great presentation and thanks for attending and please feel free to reach out to Gowling or the ACC and we can make sure that we have the connections to get what you need in terms of counsel and representation.

Thomas: Thank you everyone thank you Nat.

Catherine: Thanks very much.