The COVID-19 crisis is moving at an alarming pace and it may only be a matter of time before the UK Government announces measures to try to contain its spread. In particular, consumer-facing businesses responsible for holding large-scale public gatherings (such as concerts, performances or conferences) are not only facing the prospect of customers pulling out, but that they themselves may have to cancel such events. This might be out of choice (ie from a PR perspective), because a significant number of guests have cancelled their bookings, or because the Government puts controls in place in respect of large scale gatherings.
In our last briefing on this topic, one of the issues we looked at was whether suppliers which were prevented or delayed from performing their contracts because of COVID-19, could rely on force majeure clauses to sidestep liability for non or late performance.
Here, we look at similar issues for consumer facing businesses which are forced to cancel events, where consumer protection legislation adds an extra layer of complexity (as compared with business to business contracts).
WHAT ARE FORCE MAJEURE CLAUSES?
Ordinarily, breach by a party of its obligations under a contract resulting from non performance or delayed performance, would result in that party being liable to pay the other party the losses that they suffer as a result of the breach. However, if the party's non performance or delay in performance was caused by an event which was outside their control, and where that circumstance is addressed by a force majeure clause in the contract (which typically includes a list of such events), then the party relying on the clause may be able to side step the liability that would ordinarily have arisen as a result of their breach. Force majeure clauses can vary hugely in scope and effect but this, in broad terms, is their raison d'etre, and in the current COVID-19 climate, the spotlight is shining on them like never before.
Do your terms and conditions include a force majeure clause?
You'll need to check whether or not your terms and conditions include a force majeure clause. Even if they don't, your contract may include other terms which give you a general right to cancel or reschedule an event.
Either way, the question of whether you can rely on a force majeure clause to side step liability, or a more general right of cancellation, will depend on whether it is considered fair under consumer protection legislation. Clearly any decision to cancel will also require careful consideration of your insurance coverage.
The Consumer Rights Act 2015
The Consumer Rights Act 2015 (CRA) is the main legislation in the UK governing consumer rights; please see the box for further details of when it applies to a contract.
WHEN DOES THE CONSUMER RIGHTS ACT 2015 APPLY?
The CRA applies to all contracts between traders and consumers for goods, services or digital content. Even where you have chosen a governing law other than English law for your terms and conditions, if you pursue or direct your activities to the UK and the consumer is habitually resident in the UK, the CRA will still apply.
You are a "trader" if you are acting for purposes relating to your trade, business or profession, or if you are acting on such a person's behalf.
Your customer is a "consumer" if he or she is an individual acting for purposes that are wholly or mainly outside his or her trade, business, or profession.
The CRA sets out rules to ensure that terms and conditions in contracts with consumers are easy to understand and fair; if they are not, then they may not be enforceable by the trader. A term is only fair if:
- it is easy to understand; and
- in keeping with the requirement of good faith, it does not cause a significant imbalance in the parties' rights and obligations under the contract to the consumer's detriment.
A force majeure clause is potentially unfair under the CRA, given its effect on the liability of the party who is seeking to rely on it, and particularly if a trader obtains an unfair windfall or benefit from invoking the clause. Hanging on to all prepaid ticket money in circumstances where the event did not go ahead, is likely to be viewed as an unfair windfall or benefit; as a result it would normally be advisable for businesses relying on force majeure when cancelling an event, to be prepared to issue a full or partial refund to their customers.
Guidance from the Competition & Markets Authority, which is the body responsible for overseeing compliance with the CRA, states that force majeure clauses are more likely to meet the requirements of fairness if:
- they are non discretionary – that is, they only operate in circumstances that make it impossible or impractical for the business to complete the contract;
- the customer's attention is drawn to the risk of cancellation, if it is a real possibility;
- they clearly and specifically describe the circumstances that the clause is intended to cover, using plain and intelligible language (it helps if you use the term 'event outside your control' rather than 'force majeure'), and there should be no listing of matters that could be within the business' control, such as industrial disputes with the business' own employees, or equipment breakdown.
Other cancellation clauses under the CRA
Other unilateral rights for the business to cancel without any liability more than simply an obligation to refund prepayments, are likely to be considered unfair, especially where such clauses provide for the business to cancel at will, with no valid reason, and in particular where the customer is not given rights of equal extent and value. Such clauses should therefore be treated with caution if you are seeking to rely on them.
What if your terms and conditions don't include a force majeure clause or the clause cannot be relied on because it is likely to be viewed as unfair?
In this scenario a business would have to rely on a doctrine known as 'frustration' in order to discharge its obligations under the contract; however, the courts have traditionally interpreted this very strictly, and are even more likely to do so in a business to consumer context. For more information about the doctrine, please see this briefing for a recent case on frustration linked to Brexit.
What if the customer tries to cancel?
Again, much will depend on what your terms and conditions say, whether the relevant clauses are fair, and the circumstances in which they wish to terminate.
If your terms provide your customers with generous rights to cancel, exchange or reschedule, then assuming they have been properly incorporated, you will need to adhere to these. If cancellation rights in favour of the customer are limited, in particular in circumstances where the trader has much wider rights to cancel, then whether or not you can rely on them will depend on whether they meet the fairness test under the CRA. However, generally speaking, customers who do bring contracts to an end without justification (for example, because they are simply being cautious about attending), leading to loss suffered by the trader, cannot expect a full refund of sums paid; in these circumstances it is the customer who bears the risk.
MORE COMPLEX SITUATIONS
The situation becomes more complicated where a customer cancels because a) they have COVID-19 and they are self isolating; or b) they will not be able to travel to the event, because public transport is not working (whether that’s because there aren't enough well people to operate the transport system, or the government has put limits on public transport). There is no clear answer here. Much will depend on how balanced your terms and conditions are generally (eg cancellation rights are provided equally for both sides), precisely why the customer is cancelling, and the wider circumstances. For example, a customer who is unable to attend because they have COVID-19, but in circumstances where the Government hasn't yet ordered that everyone self isolate, is not that different from any other situation where a customer has to cancel due to illness, and usually, this is a risk which the customer is expected to bear. However, where the customer is not attending because the Government has placed limits on public transport for example, then it may be that circumstances have tipped into a force majeure situation where you as the trader may well consider cancelling the event anyway.
Other factors to consider
Some other important considerations include:
- Health and safety: even where there is no official order from the Government to cancel public events, you should consider whether or not to go ahead with a public gathering or event. From a public relations point of view, it would be damaging if the virus was known to have spread at your event. And from a legal point of view, if a consumer contracts the illness at your event and suffers loss, you would potentially be liable for any losses caused by any negligence in holding the event. Keep abreast and up to date with advice and guidance issued from government and relevant authorities, such as Public Health England.
- Suppliers/other contracts with third parties: which of your contracts with your suppliers and other third parties such as talent/headline performers might you have to cancel or suspend as a result of your cancellation of an event? What are your rights to terminate or suspend those contracts, and what are the consequences on your obligations to pay under them? You should review your supplier contracts, if relevant.
- Insurance: what insurance cover do you have if you have to cancel an event? You should review your existing policies to check whether they would cover your losses and liabilities (including any refunds to customers and/or pay-outs to suppliers where those services cannot be cancelled without payment).
- Postpone instead: rather than cancel altogether, is it feasible/preferable to postpone the event instead?
- STAR (and other industry organisations): for those businesses which are members of the Society of Ticket Agents and Retailers and other industry bodies, bear in mind the code of practice which has its own rules and standards of customer service that you must adhere to as a member. These include that the STAR member must refund at least the face value of a ticket if an event is cancelled and the event organiser enables and authorises refunds.