By Hector MacQueen, Emeritus Professor of Private Law, University of Edinburgh
If one looks back at previous pandemics, such as the so-called “Spanish influenza” of 1918-19, through the lens of the law reports, the most striking finding is an almost complete lack of cases in Scotland (or elsewhere in the United Kingdom), despite the lack of any legislative response at all from a central government yet to assume much responsibility for public health. The only possible Scottish case about Spanish influenza thrown up by a Westlaw search for “influenza” between 1918 and 1925 was McKeating v Frame 1921 SC 382, which concerned an employer’s liability for the death of a female farm servant aged 17 who collapsed with double pneumonia and influenza while at work in March 1919 whereupon the employer sent her without any support to her mother’s home several miles away, travelling on foot and by bus; she died two days later. The first instance decision that the employer had no liability in these circumstances was fortunately over-turned by the Second Division.
The coronavirus pandemic has scarcely been more productive in terms of Scottish cases, although there have been some judicial reviews of the Scottish Government’s lockdown subordinate legislation and a few criminal cases where the process was affected in some way by the incidence of Covid.[1] Private law has seen little action so far. Academic speculation that there might be a rash of cases about the impact of Covid and lockdown on the performance – or non-performance – of contracts has not yet been borne out.[2] But there have been three decisions on that question in the sheriff court and the Outer House. While none of these has had or is likely to have a radical effect on existent understandings of the law and only one is so far reported, it seems right to take some notice of them, if only for the benefit of future historians of the Covid pandemic in Scotland.
Force majeure
The first two cases relating to the pandemic and the consequent lockdowns were both ones where the contract’s force majeure terms were held to provide the answer, albeit in each case leading to a holding that the contract was terminated rather than any judicial attempt at equitable adjustment of the parties’ relations. It is striking, however, that in at least one of the cases the judicial approach to the interpretation of the term was less strict than is usually said to apply to force majeure clauses.[3] Indeed, the sheriff (B M Cameron) was clearly influenced as much by what he saw as the overall balance of equities between the parties as by the wording of the force majeure term. In Dumfries & Galloway Council v NST Travel Group Ltd 2021 GWD 13-186 (Glasgow Sheriff Court, 7 April 2021) a local authority contracted with NST to provide a school trip to London, paying the full price of almost £30,000 in advance of the trip, which was to take place in March 2020. The contract, which was in NST’s standard form, included the following term:
6. If we cancel your booking
We reserve the right to cancel your booking. We will not cancel less than 10 weeks before your departure date, except for unavoidable and extraordinary circumstances …. Unavoidable and extraordinary circumstances means a situation beyond our control, the consequences of which could not have been avoided even if all reasonable measures had been taken. … If your tour is cancelled, you can either have a full refund of all monies paid or accept an alternative tour of comparable standard from us if we offer one … .
The trip was cancelled after the Prime Minister made a speech about the rapidly spreading pandemic on 16 March 2020 in which he said that all un-necessary travel should stop immediately. The email discussion about possible cancellation of the trip which followed between the parties was initiated by the local authority but ultimately NST issued an email on 17 March in which it said that “We have made the informed decision to cancel your tour”. When the local authority claimed a refund, however, NST argued that the authority had made the cancellation and so was not entitled to a refund under the contract term. Further, the term envisaged refund only if the customer was in a position to proceed with the booking but NST had unilaterally decided to cancel. The email correspondence showed that the local authority did not wish to proceed before the NST email of 17 March.
Sheriff Cameron declined to read the term in the way proposed by NST and held that the company must make a full refund. The parties were agreed that the circumstances were indeed “unavoidable and extraordinary”, but that provision could not be taken to be for the protection of NST alone. Instead, the term was to be read as a contractual embodiment of the rule laid down by the House of Lords in the classic Scottish case of Cantiere San Rocco v Clyde Shipbuilding & Engineering Co 1923 SC (HL) 105, that the economic imbalances left by the non-completion of a frustrated contract were to be equitably redressed by way of the law of unjustified enrichment.
The second case, Billy Graham Evangelistic Association v Scottish Events Centre [2021] SC GLW 9, 2021 SLT (Sh Ct) 185, is more straightforward, at least in terms of the application of the force majeure clause. The facts are somewhat complicated, however. In 2019 the Association booked a date at the SEC venue for an event in May 2020. The venue’s capacity of 12,000 people was expected to be fully required. In January 2020 Glasgow City Council, the SEC’s majority shareholder, got wind of the event and in effect required its cancellation by SEC. Media publicity had led the Council to think that the event might stir up Islamophobic and homophobic feelings in the city as well as damage its reputation as an LGBT and Muslim-friendly location. On grounds of damage to its reputation, SEC intimated cancellation to the Association which however refused to accept it and, maintaining that the contract remained in force and effect, raised an action to enforce the contract. In this approach the Association was fortified by reference to White & Carter (Councils) v M’Gregor 1962 SC (HL) 1 which holds that a contracting party faced with anticipatory breach by its co-contractor has a choice between accepting the breach and terminating the contract, on the one hand, and continuing to insist upon full performance by each side, on the other. Thus matters stood at the outbreak of the pandemic, whereupon it became illegal for the SEC to host an event on the expected scale. On 27 March SEC invoked the contract’s force majeure clause:
11.1 If any Force Majeure event occurs and if SEC is or reasonably anticipates that it will be prevented or hindered from fulfilling the substance of its obligations under the Event Hire Agreement, then SEC shall forthwith notify the Company and the Company shall be entitled at any time thereafter, so long as such cause still subsists at the relevant time, to cancel the Event Hire Agreement by notice in writing (including by e-mail followed within 24 hours by a hand delivered or postal notice) to SEC at any time within 14 days of the commencement of the Hire Period.
11.2 If, although SEC considers itself able to fulfil the substance of its obligations hereunder, SEC is or reasonably anticipates that SEC will be prevented or hindered from fulfilling a particular part or parts of such obligations, then SEC shall be entitled by notice in writing to the Company to cancel or suspend the Event Hire Agreement as to such part or parts of such obligations provided that, in the event of a cancellation or suspension of a particular part or parts of SEC’s obligations which, to a material and substantial extent, shall prejudice the holding of the Event, the Company may, by notice in writing to SEC given not later than 7 days after receipt of such notice from SEC (and in the case of a suspension given while such suspension lasts) elect to cancel the Event Hire Agreement as if paragraph 11.1 applied.
“[F]orce majeure event” was defined in clause 1.1 as “…any act outside the reasonable control of either party including without limitation … chemical, biological … contamination; the acts of any public authority or imposition of any embargo, sanction or similar action … and other difficulties including failures of suppliers…”
Sheriff John N McCormick had little difficulty in holding that the pandemic and consequent government measures amounted to force majeure under this clause and that under it, SEC was entitled to choose between cancelling or suspending the event, and was not bound to suspend only given the existence of the Association’s prior claim for breach of contract. That claim had been superseded by the subsequent events. The parties also agreed that the force majeure clause superseded the common law of frustration, which was accordingly irrelevant. That seems correct in so far as the supervening event affecting the contract is covered by the clause; it is suggested that the possibility of frustration remains where the risk is not so allocated by the contract.[4]
Covid restrictions and keep-open clauses
The third case, 16 Sapphire SARL v Marks and Spencer PLC [2021] CSOH 103, 2022 SLT 84, concerned the lease of store premises in an East Kilbride shopping centre which the tenant, Marks and Spencer, wished to close even before the imposition of the Covid lockdown restrictions in March 2020. Lord Braid described subsequent events as follows, at para 11:
When Covid restrictions were introduced in March 2020, the store remained open for the sale of essential foodstuffs from the Foodhall, access to which was gained from the Righead Gate entrance, but otherwise the store was closed, as required by the Coronavirus legislation in force at that time. The doors into the store from the Mall were locked about two weeks later and a high, full unit width white wall, separating the Foodhall from the ground floor clothing area, was erected. Black film was applied to the full glass frontage and doors within the Mall and notices were applied to the doors, directing customers wishing to purchase food to the Righead Gate entrance. When Covid restrictions were lifted, the pursuer expected that the defender would resume trading as previously; but it did not. On the contrary, the sale of food was greatly depleted to the extent that by 21 July 2020 there was but one shelving unit, offering for sale biscuits and juice. There was no stock within the clothing area and the white wall remained in place. A sign on the door now directed customers to the defender’s store within the Kingsgate Retail Park, elsewhere in East Kilbride.
The landlord obtained an interim order for specific implement requiring the tenant to re-open the whole of the store, keep it open for business during normal business hours, and keep it sufficiently staffed, stocked, furnished and otherwise equipped for that purpose. In purported fulfilment of the order, as Lord Braid put it at para 3:
The store remains open inasmuch as some (but not all) of the entrance doors are unlocked. It now trades as an outlet store with limited staff. From within the shopping centre, it appears to be closed.
In an action claiming that Marks and Spencer had wilfully disobeyed the interim order, Lord Braid held that its wording carried a necessary implication requiring the retailer to trade in good faith, and not to carry on business half-heartedly. This was not satisfied thanks to (a) the defender’s failure to re-open the Mall entrances to the store (coupled with the continuing black-out of the shop windows in the Mall); and (b) the significant reduction in both staff numbers and the level of stock within the store. The closure of some doors could not be justified as a measure to prevent Covid infection, especially as the tenant’s store in nearby Hamilton continued to have open doors from both the street outside and inside its mall. Further, no other of the tenant’s stores of comparable size was being operated solely as an outlet store. But Lord Braid went on to decide that Marks and Spencer were not (yet) in contempt of court, having regard to the inevitable uncertainty as to the content of a “keep open” order and to the fact that the company had taken legal advice on how to comply with it. The breach was therefore not “wilful”. In any event, only a financial sanction could be imposed, and the defender was already exposed to the possibility of a damages claim for breach of contract.
Post-covid impact
Of these three cases, only the last seems likely to earn a place in contract textbooks, as a useful exposition on the specific implement of “keep open” clauses in commercial leases. All three do illustrate, however, the impact which Covid and the resultant government lockdowns have had (and continue to have at the time of this writing in January 2022) on people’s daily lives and on the operation of business and other organisations. The puzzle in all three cases is why the parties felt unable to settle their differences by negotiation and had to resort instead to the courts. Possibly in the Billy Graham case the parties’ relations were too soured pre-pandemic to be recoverable, while similarly in the Marks and Spencer case the tenant had already reached the decision to close its store which the owner of the mall had good commercial reasons of its own to resist as strongly as possible. Lord Braid does express surprise that the landlord only sought to enforce the interim order more than a year after it had been granted;[5] perhaps there had been some attempt to negotiate a settlement during that time. Nothing similar emerges from the Dumfries & Galloway judgement, however, to suggest why NTS was so determined to retain the money paid for a service which it could no longer provide. Perhaps the relative lack of other litigation so far is to be explained by most peoples’ appreciation that their difficulties with the pandemic were best resolved by mutual accommodation so long as the situation lasted. It remains to be seen whether the longer-term adverse consequences for business in particular will be settled in the same spirit after Covid has become merely endemic rather than pandemic in nature.
Hector MacQueen, Emeritus Professor of Private Law, University of Edinburgh
[1] See e.g. Philip v Scottish Ministers [2021] CSOH 32, 2021 SLT 559; KLR & RCR International Ltd (t/a One20 Wine Café) v Scottish Ministers [2020] CSOH 98; HM Advocate v Lindsay [2020] HCJAC 26, 2020 JC 293.
[2] See Hector L MacQueen, “Coronavirus Contract Law in Scotland”, in Ewoud Hondius and others (eds), Coronavirus and the Law in Europe (2021) 491-507; S C Styles, “Contracts and Coronavirus”, 2020 SLT (News) 99-108, 109-114 (2 parts); Peter Nicholson, “Recovery Time for Contracts?”, (2020) 65(8) Journal of the Law Society of Scotland 20-21.
[3] W W McBryde, The Law of Contract in Scotland (3rd edn, 2007) para 21.14; Hugh G Beale (ed), Chitty on Contracts (34th edn, 2021) para 26.067.
[4] Chitty on Contracts, para 26.061.
[5] Para 50.
