COVID-19: Implications for the Leisure and Tourism Industry

26 March 2020

Author: Paul McGuickin
Practice Area: Corporate - M&A, COVID-19

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The outbreak of the COVID-19, is presenting immense challenges for businesses and society as a whole. The situation related to the outbreak is rapidly evolving and is likely to do so for some time yet.

While the primary focus of any business will be on ensuring the health and well-being of staff, businesses are facing an increasing number of challenges that need to be addressed and mitigated.

From the outset of the outbreak, it was clear that the leisure and tourism sector would be greatly impacted. Following the unprecedented three-week lockdown announced by the Prime Minister on 23 March, the vast number of operators within the sector have been, along with all other non-essential businesses, required to shut. However, it is likely that some operators, particularly within the hotel industry, may remain open to assist key workers and support essential services.

Below are some practical steps for those hotels who are to remain open to consider together with consideration of the contractual provisions that may be of assistance.

Protecting staff and guests

As well as following both the World Health Organisation and local government guidelines, it is essential that hotel operators take into account their general duty to use reasonable care to ensure that their properties are safe for both staff and guests. It may therefore be necessary for an operator to implement policies with regards to when staff members can and cannot work and screening guests for high risk factors. Screening procedures may include determining whether or not a staff member or guest has been in close contact with a confirmed case of COVID-19.

Operators should also provide information to all employees and contract staff on relevant procedures to be taken to prevent the spread of COVID-19 and what to do in circumstances where a guest or employee becomes affected by the virus. However, operators must also ensure that specific communities and visitors are not targeted or subjected to discrimination.

Contractual provisions

Operators should think carefully about reviewing key contracts to determine whether the impact of COVID-19 constitutes a “force majeure” event, which is defined as an unforeseeable circumstance preventing a party or parties from fulfilling a contract. Consequently, depending on the specific wording of the contract, an event amounting to a force majeure may either excuse or suspend performance of the parties’ contractual obligations.

Unlike other jurisdictions which provide a statutory meaning of the term, “force majeure” does not have a settled meaning in Northern Irish law. Consequently, each contract has a different definition, which depends on the subject matter of the contract and the outcome of the parties’ negotiations at the time of entry into the contract. Parties must therefore check the contractual wording to determine whether relevant terms (such as “pandemic”, “epidemic” or “outbreak of disease”) have been included or excluded.

Other considerations include:

  • If a health epidemic is not specifically included as a force majeure event, could it be covered under other wording of the clause? For example, national or local government decisions or actions may fall within the scope of the force majeure definition. There may also be relevant wording relating to political interference or changes in the law. Operators should check their contracts for exclusions to force majeure clauses which frequently include financial inability to perform and general economic downturns, which may prevent the ability to bring a claim in these circumstances.
  • Are there any notice requirements in relation to a force majeure event? If notice of a force majeure is required, it should be issued in line with the contract provisions. Failure to do so may result in the affected party being unable to rely on the force majeure clause or claim relief from impact of the force majeure event.
  • Is it essential that the triggering event “prevents” performance? In cases where such wording has been used, courts in England have held that the party seeking to rely on the force majeure clause must be able to establish that performance of the contract is “legally or physically impossible and not just difficult or less profitable”. Alternative words such as ‘hinder’ or ‘delay’ have been taken to have a wider scope and will generally be satisfied if it can be shown that performance is significantly more onerous. At the end of the day, the courts seek to enforce performance of a contract and as a result, a mere increase in the cost of performance will not in itself be sufficient to trigger the force majeure provisions under a contract, unless expressly provided for.
  • Is the affected party able to show that it has used reasonable endeavours to prevent or at least mitigate, the effects of the force majeure event? Force majeure relief is rarely available to assist the impact of events that could have been avoided or mitigated.
  • Are there any other factors that may have impacted performance of the contract? Courts in England recently held that, whilst it depends on the wording of the clause in question, it is commonly the case that a force majeure event must be the only effective cause of default by a party seeking to rely on the force majeure provisions. If it can be demonstrated that other factors have prevented the performance of the contract, the non-performing party cannot rely on the force majeure provisions under the contract.
  • Are there any relevant statutory controls on force majeure? Where the parties’ contract on standard terms of business, the laws of Northern Ireland provide that any exclusion or restriction on liability must satisfy the requirement of reasonableness under section 3(2) of the Unfair Contract Terms Act 1977, otherwise it is void. Such term must be fair and reasonable to include in the contract, taking into account the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.

If an operator is able to determine that the impact of the COVID-19 outbreak is a force majeure event, the contract generally stipulates that the affected party’s obligations are suspended for the duration of the force majeure event. Once the force majeure event comes to an end, the contract is “re-activated”, unless the parties agree otherwise. Accordingly, once triggered, the non-performing party’s liability for non-performance or delay is removed, usually for the duration for the force majeure event. Some contracts may also provide that the parties can seek to terminate the contract if it becomes unfeasible to resume the contract once the force majeure event has ceased.

Conclusion

Whether the COVID-19 outbreak will be deemed a force majeure event very much depends on the wording and scope of the force majeure provision in the contract. Consequently, parties facing business interruptions as a consequence of the current COVID-19 pandemic should familiarise themselves with the force majeure clauses in their contracts, taking note as to whether they include any conditions precedent (i.e. notice requirements) which, if not fulfilled, could prevent reliance on the same.

It is also worthwhile to note that, regardless of whether force majeure provisions apply, it may be possible to rely upon the doctrine of frustration. However, this doctrine is generally narrower in scope than the application of force majeure provisions, but may still be of some use in situations where it is impossible to fulfil contractual duties.

If you have any queries please contact Paul McGuickin in Carson McDowell’s Corporate team for further information.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

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