August 10, 2020

To have and to hold

Marica Frost, one of our entrepreneur clients, operates The Curator, a platform that helps couples about to tie the knot connect with some of the best wedding vendors in New Zealand. Marica reached out to us to provide some tips to members who might be planning weddings in this uncertain COVID-19 environment. Here's what we had to say (originally sent as a newsletter to members of The Curator).

The COVID-19 pandemic has had an immense impact on the provision of goods and services fundamental to event planning. With the resurgence of cases both here and in Australia, the uncertainty and unpredictability will be our ‘normal’ for some time yet. In this article we look at some of the issues you should consider if planning, or providing goods or services, for a wedding, this coming season in the COVID-19 environment.

The importance of a contract

Various issues have arisen during the recent lockdown where events, such as weddings, had to be cancelled. For example, can a customer receive a refund of a deposit paid to a vendor for services not provided? What are a vendor’s rights if a customer cancels their wedding because their wedding venue closed down? These, and a lot of other scenarios, probably weren’t contemplated at the time the parties entered into a contract (assuming one was entered in the first place).

Moving forward, now that everyone’s aware of the challenges faced in the COVID-19 environment, it’s a good idea to have a contract in place that addresses certain issues. For example, if a wedding is cancelled because of another forced lockdown, can a customer receive a refund of deposits paid for catering, venue hire, florists etc? Will a vendor be liable if it cannot provide its services?

We discuss some of these issues below.

Include a force majeure clause

The contract could include a force majeure provision that addresses the situation where you (or the other party to the contract) cannot perform certain obligations (e.g. provide goods or services, or provide access to a venue) due to an event outside of the party’s control.

A force majeure provision typically states that the affected party is not liable to the other party for its non-performance of the contract, or a delay in the performance of its obligations, due to a ‘force majeure event’ occurring.  

A ‘force majeure event’ is typically an event beyond the control of a party, including acts of God (e.g. earthquake, fire, flood, tsunami), war and strikes. These events are usually specified in the contract as ‘force majeure events’.

Before Covid-19, pandemics or epidemics, and government intervention, would sometimes be included as force majeure events. However, in today’s environment it’s particularly important to specify these latter events as ‘force majeure events’ with an express acknowledgement that Covid-19 is included in the definition of ‘pandemic or epidemic’.

For example, a customer might arrange to get married in one of the Pacific Islands if a ‘travel bubble’ is implemented. That customer might arrange for their photographer to fly to the Pacific Island to shoot the wedding. The photographer is set to fly out but the relevant Government of the Pacific Island imposes (at short notice) a mandatory quarantine period because COVID-19 has crept in. This makes it impossible for the photographer to carry out the services. If the contract has an adequate force majeure provision then that photographer would not be liable to the customer for failing to provide its services.

The flip-side of this is that the customer probably won’t have to pay the photographer if the force majeure event also applies to them. So if you’re a customer, it’s important to check whether a force majeure clause in a contract also protects you.

What if there’s no force majeure clause in the contract?

If there’s no force majeure clause in your contract, the contractual principle of frustration may apply.

A contract may be frustrated when it is completely impossible to provide the goods or services that were promised. A contract won’t be frustrated just because the vendor considers it’s too hard or expensive to comply. In the context of COVID-19, a contract may be frustrated if, due to government direction (such as the Level 4 lockdown), it is illegal to provide the goods or services in question.

Frustration is all-or-nothing; a contract cannot be partially frustrated. If an event is postponed, the principle of frustration will not apply as the obligation to provide the goods or services has only been delayed to a later date.

If a contract is frustrated, neither party needs to keep their side of the agreement and any specific terms in the contract that set out the consequences of frustration will apply.

For example, if a customer has contracted a caterer for their wedding and the caterer is no longer legally able to provide the service due to a regional lockdown being put in place, the contract may be frustrated meaning that the caterer will not have to provide the service and the customer will not have to pay.

Dealing with deposits

Recently, there has been a lot of uncertainty as to whether deposits paid by customers to vendors were refundable for services not provided due to the COVID-19 crisis. Some deposits paid by customers may have been agreed to be “non-refundable”, in which case deposits would generally not be refundable. If the contract is frustrated and the terms of the contract do not address whether a deposit is refundable, then under law the customer would be entitled to a refund (less any reasonable expenses incurred by the vendor before the contract is frustrated).

In an effort to avoid disputes, it’s best to address in a contract what will happen to a deposit that has been paid. For example if the vendor is unable to provide services due to the COVID-19 crisis the deposit could be:

  • stated to be non-refundable;
  • stated to be refundable if a force majeure or other specified event occurs, or the contract is frustrated; or
  • treated as a credit for services that the parties agree to be provided at a later date if a force majeure or other specified event occurs, or the contract is frustrated.

If you’re a vendor, when deposits are received it’s good practice (if possible) to put that money aside until you have performed the services. That way, if a deposit needs to be refunded you will have those funds available rather than trying to find the money for a refund if the deposit’s already been spent.

How have you managed your liability to third parties?

If you’re a vendor, and you provide goods or services to customers for which you use sub-contractors, it’s important to make sure you manage your liabilities carefully. It’s a good idea to have a clause in your sub-contracts that only require you to pay your sub-contractors once the relevant customer pays you.

This is especially important at the moment, as another mandated lockdown could mean that you’re in a position where you cannot provide the goods or services to a customer who does not have to pay you, but you still have to pay your sub-contractors.

Another consideration is whether you have contracted to provide services in your personal capacity or in the name of your company. If you have contracted in your personal capacity and a customer makes a claim against you, then you are personally liable if something goes wrong. This means your personal assets such as your home or car (if owned by you) could be at risk. Contracting under a company name will usually mean your liability is limited to just the assets that are owned by the company, providing you with more protection.

Happy days ahead

These are difficult times for vendors and customers, but parties should work together to agree what will happen if a wedding is cancelled or postponed because of COVID-19. A contract should deal with disruptions to the wedding due to events outside of the parties’ control. Vendors and customers should treat each other fairly – although vendors may risk backlash or negative reviews if they don’t provide a refund or credit for cancelled weddings, customers should also understand the impact that any cancellation may have on the livelihood of vendors.

This article was co-authored with Josie Desmond.

Social media image credit: Marc A Sporys

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