Applied Legal Studies 610 Contracts

APPLIED LEGAL STUDIES 610

Contracts

Robert Russo

Dr. Russo obtained his LLB, LLM, and PhD degrees from the Allard School of Law. His research has been primarily in the area of labour/ employment and immigration law and he has published several articles in this field. He joined UBC as a part-time faculty member in 2017 and was appointed a full-time Faculty Lead Lecturer for the LLMCL program in 2018. He has subsequently guided the teaching for the Distance Learning and LLMCL programs, designing various online courses, as well as teaching in the first-year JD program.

His prior experience includes 10 years serving as one of the Federal Government’s representatives at hearings held across Canada to resolve individual claims-related abuses committed at federally operated Indian Residential Schools. He has taught for the Continuing Legal Education Society, the Professional Legal Education Co-Operative Association.

ALS 610

Contracts

The law of contracts underlies several areas of BC Notary practice. An understanding of contract law is also essential to the business of running a practice—hiring staff, leasing premises, and so on.

The course on Contracts taught in the Spring term introduces students to fundamental principles of Canadian contract law together with the practical application of those principles in the commercial environment. Students learn the essential elements of what makes an enforceable contract such as offer and acceptance, certainty of terms, form and consideration, as well as those things that may well make a contract unenforceable, such as misrepresentation, frustration, duress, and privity issues. Principles of contractual interpretation and contractual elements such as warranties, representations, conditions, and remedies for breach of contract are also examined. Students also have the opportunity through the course to the foundational legal skills learned in the Fall term.

The law of contract is primarily made up of common law rules and doctrines as opposed to legislation. While the basic principles of contract law change relatively slowly, social changes and developments can have a significant impact on the way those principles are interpreted and applied, together with their impact on individuals and businesses.

The COVID crisis has provided a dramatic example of this process as the problem of contract frustration (one party being unable to carry out his or her financial obligations) has become increasingly prevalent.

The doctrine of frustration itself is not new, but Canadian Courts are only now beginning to grapple with the effects of the pandemic on contractual obligations. How do Courts deal with contracts possibly frustrated by COVID-19?

The term force majeure is generally defined as an unexpected and disruptive event that may operate to excuse a party from a contract. When referring to force majeure, it can include both the common law right to invoke force majeure as a defence against nonperformance or a contractual clause or a term that is included in contracts to relieve performance of contractual parties’ obligations under certain circumstances arising that are beyond their control.

Generally, those circumstances can include natural events, certain human actions or other unavoidable catastrophes that render the normal obligation of contractual performance impossible. The “common thread” of those events is “the unexpected, something beyond reasonable human foresight and skill.” (Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp & Paper Co. [1976] 1 S.C.R. 580) When those events occur, force majeure clauses generally operate to discharge a contracting party from contractual obligations.

In the Alberta Court of Appeal decision Atcor Ltd. v. Continental Energy Marketing (1996 CarswellAlta 642), Kerans JA wrote that a force majeure clause should be drafted to “protect the parties from events outside normal business risk” adding that the clause addresses three questions. • How broad should be the definition of triggering events? • What impact must those events have on the party who invokes the clause? • What effect should invocation have on the contractual obligation?

Depending on how a force majeure clause is drafted, a Court may find the COVID-19 pandemic to be a force majeure event giving rise to relief from parties’ contractual obligations. Given the recentness of the pandemic and its ongoing effect on the judiciary, Canadian Courts have only recently begun to consider the possible application of a force majeure clause within the context of COVID-19.

A search of Canadian decisions reveals few cases that have dealt with COVID-19 as a possible force majeure event in the common law provinces. The cases that have arisen deal mostly with airline passengers, which have their own complex framework, and landlord/ tenant agreements. Although landlord/tenant relations also have provincial legislation affecting agreements, the application of force majeure to residency agreements is a bit more easily analyzed. Two cases in the past year show that while provincial “lockdowns” enacted during COVID-19 have generally been accepted as force majeure events, there is still the need to prove real rather than speculative harm. The cases also turn on the specific drafting of a force majeure clause and interpretation of COVID-19 policy and other legislative objectives in the specific context.

The Ontario cases are just the first ripples in an expected wave of litigation, however; it remains to be seen how those events will unfold.

The Ontario COVID-19 lockdown and phased re-opening prevented many businesses from operating fully or at all from March to July 2020. In a recent Ontario Supreme Court case, a tenant operating a business from a landlord’s premises attempted to rely on a force majeure clause in the commercial lease. (Durham Sports Barn Inc. Bankruptcy Proposal, 2020 ONSC 5938)

The force majeur clause excluded the landlord from obligation to provide the tenant with quiet enjoyment as a result of the shutdown but did not relieve the tenant from the obligation to pay rent during the shutdown.

The Court found that Ontario legislation enacted during the shutdown aimed to ensure the survival of small businesses by focusing on preventing evictions by landlords, and not on suspending rent payments by tenants; the tenant’s failure to pay rent was not consistent with legislative objectives of protecting small businesses in Ontario during the shutdown.

The relevant issue before the Ontario Supreme Court in Chalich v. Alhata (2020 ONSC 2569) was whether to order a sheriff to carry out a residential tenant’s eviction despite the provincial eviction moratorium. The tenant’s failure to move was directly related to the COVID-19 pandemic. The landlord was seeking the eviction because he was required to deliver vacant possession of the condo unit occupied by the tenant as a condition of an executed agreement of purchase and sale.

Ultimately, the Court relied on the provincial eviction moratorium imposed by Ontario’s Chief Justice suspending most evictions of residents from homes pursuant to eviction orders. The Court cited the absence of evidence of irreparable harm to the landlord; there was no evidence that the sale would not close (the purchaser had granted given past extensions). Characterizing both landlord and tenant as good-faith victims of events, the Court concluded that the tenant and family could not move out and “be put out in street.”

Those cases provide some hints as to how force majeure events may be interpreted by British Columbia Courts during the COVID-19 pandemic. The Ontario cases are just the first ripples in an expected wave of litigation, however; it remains to be seen how those events will unfold. The legal principles that we discuss in ALS 610 will equip students to understand how those and other developments in the law of contracts may affect the interests of their clients and their own practices. s