While governments have assisted individuals and businesses during and subsequent to lockdown of people, businesses and the economy, it will be left to the judicial system to apply general legal principles to determine the consequences of failure to respect a particular contractual obligation arising from the pandemic.
In Québec, creditors and debtors of obligations will first need to review the terms of the written contract binding each party to the execution of certain obligations. For example a contract can envisage the consequences of non-performance by either party even for events beyond the control of the parties.
However in event of silence in the contract the parties will look to the Civil Code of Québec (C.C.Q.).
Our Code in article 1693 states that the debtor can be exonerated or released from its obligation if not performable due to a “superior force”. It is the burden of the debtor to prove the superior force and its impact on the debtor.
In Quebec and Montreal superior force is both an unforeseen and irresistible event making the execution of the obligation impossible as defined in 1470 C.C.Q. Emergency business closings arising from a pandemic may be such an event much like an earthquake for example.
The Court will review if the parties could have foreseen the current Covid tragedy when they freely entered into the contract. If for example the event occurs every 150 years it may be deemed unforeseeable. The event must also be impossible to avoid: irresistible rendering performance impossible. The event cannot have been created by the debtor and must be totally external to the debtor.
Each case must be examined by the Court on its own facts and merits.
Nevertheless the Court will review the good faith owing by each party in a contract to the other, including the obligation to mitigate and minimize damages.
It may be worth reviewing your commercial insurance policies to examine whether the loss is covered or whether a specific exclusion for virus or pandemic is enunciated in the policy. Government programs such as possible short term rentals owing by small businesses to their lessors may apply.