Business Clinic: Has Covid-19 put us in breach of contract?

Whether you have a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help. Here Kate Westbrook, one of Thrings’ leading commercial lawyers, sets out when a company is obliged to return a deposit for breach of contract.

Q. We have diversified by converting a timbered barn into an attractive venue, mainly used for weddings.

The pandemic has played havoc with our business. Luckily, many couples who had booked for this year have moved their bookings with us to 2021. Where we deal direct with couples, there hasn’t been much of a problem.

However, we are having issues with one commercial wedding organiser demanding that we repay them a £2,000 deposit for a wedding with 150 guests, booked for mid-September this year.

We have not cancelled this wedding but the future, and how the venue can be used, are uncertain.

With the pandemic in mind, taking a prudent approach we will now only be able to fit in about 35 guests. The organiser also says they have spent money booking catering, a DJ and other services and that they will look to us for these costs.

Please advise what our position is on the deposit and their claim for the other costs.

You are right not to cancel the wedding yet. It is not due to go ahead until September and, at the time of writing, we don’t know whether weddings will be able to take place and, if they can, whether the number of guests will be limited (although it sounds as though you’ve already started considering how to make the venue Covid secure in accordance with current government guidance).

You are currently not in breach of your contract as you have not yet failed to make the venue available. Given uncertainty surrounding weddings, it’s better for both parties to reach an agreement to postpone the wedding until a later date (as you have done with other couples).

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You cannot force the commercial organiser to accept a revised date unless you have a very specific clause in your contract which allows for this (this would be very unusual and could be void if there is any uncertainty about how it operates).

If you can’t make the venue available on the allotted date due to government restrictions, this is likely to be a technical breach of the contract.

Force majeure protection

The “breach” would be excused (and therefore would not lead to a claim for breach of contract) if there is a force majeure clause in your written contract.

Even then, the devil is in the detail – is the pandemic situation covered by the definition of force majeure and what else does the clause say?

Often a force majeure clause is linked to the right to terminate the contract. In that case either party might terminate the contract.

The deposit (or part of it after you deduct reasonable costs) might be refundable but this will depend on the contract terms.

If you don’t have a force majeure clause, the legal doctrine of frustration may apply if it is impossible for you to hold the wedding at your venue.

This will depend on the situation at the time, but if it applies, the contract is “discharged” and all rights and obligations are cancelled.

There are statutory provisions which would allow for the deposit (or some of it) to be reclaimed.

As for the claims for the other costs threatened by the commercial organiser, this will depend on exactly how your contract is written.

However, where you have a force majeure clause or if frustration applies, it’s unlikely you would be held liable for these. If there is no force majeure clause and the wedding cannot take place due to government restrictions, there is a strong argument that you are not the cause of “wasted costs” and therefore you are not liable for them.

Guest capacity

With regard to guest numbers, it’s possible there is either a written or an implied contractual term that the venue will be made available with a certain guest capacity.

If this needs to be reduced due to government restrictions or following your own risk assessments, this could well be a breach of contract depending on how the contract has been written.

A force majeure clause or frustration might apply here but it’s possible the commercial organiser could claim this to be a major breach of contract which would entitle them to cancel the contract and claim damages.

Those damages might include repayment of the deposit and any other costs they believe are linked to your breach.

In this case, there might be more of an argument for the “wasted costs” (such as the DJ and catering) or any claims made by the couple to be recovered.

Your contract’s limitation of liability clause could protect you here and at least limit the compensation that might be payable.

In summary, much rests on the content of your written contract. Readers should also note that the above response might differ if the query concerned a couple, as they would hold consumer status in law.

This is a complex situation and both the law and procedure heavily depend on your specific facts. It is recommended that you seek specialist independent legal advice to assess your situation.

Kate Westbrook is a partner at Thrings


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