Force Majeure Clauses: Ontario Superior Court Clarifies Covid-19 Impact On Contract Performance Obligations

• Published date: 16 December 2022
• Subject Matter: Corporate/Commercial Law, Coronavirus (COVID-19), Contracts and Commercial Law, Litigation, Contracts and Force Majeure
• Law Firm: Gowling WLG
• Author: Mr Sahil Shoor, Tristan Neill and Michael Piaseczny (Summer Student)

The COVID-19 pandemic created new and unanticipated operating challenges for businesses around the world. The pandemic caused many businesses to significantly scale down operations, or to cease operations all together. It was no surprise to litigators that contracting parties would invoke force majeure clauses in their contracts in response to the pandemic's significant effect on business operations.

On Oct.19, 2022, the Ontario Superior Court of Justice released its decision in Porter Airlines Inc. v. Nieuport Aviation Infrastructure Partners GP, 2022 ONSC 5922, where it considered whether the pandemic engaged the force majeure clause in a License Agreement between Porter Airlines Inc. ("Porter") and Nieuport Aviation Infrastructure Partners ("Nieuport"). The Court also considered whether Nieuport acted in a "commercially reasonable" manner in exercising its contractual rights under the License Agreement.

The Court ultimately held that the consequences of the pandemic did not engage the force majeure clause entitling Porter to relief from its obligations under the License Agreement. Further, the Court held that Nieuport did not act in a commercially unreasonable manner, as it simply exercised its rights under the License Agreement.

Background

Porter is a regional short-haul commercial aircraft carrier, based out of Billy Bishop Toronto City Airport ("Billy Bishop"). Nieuport is the owner, manager and operator of the passenger terminal at Billy Bishop. When Nieuport became the owner of the passenger terminal at Billy Bishop it entered into a License Agreement with Porter. Under this License Agreement, Porter agreed to pay fees to Nieuport, including fees for use of the terminal, in exchange for privileges as granted by Nieuport, including the right to operate as an aircraft carrier in the terminal. Prior to the pandemic, Porter and Nieuport were already engaged in a dispute regarding fees as charged by Nieuport.

On March 20, 2020, Porter announced that it would be suspending its operations at Nieuport. Porter's operations did not resume until Sept. 8, 2021. Soon after this announcement, on March 27, 2020, Porter notified Nieuport that it considered the pandemic to be a force majeure event, which entitled it to cease its monthly fee payments to Nieuport. Despite the pandemic, Nieuport increased its fees on April 1, 2020. Subsequently, Porter sought to reduce its number of terminal "slots" without giving proper notice to Nieuport as required by the License Agreement.

While the Court addressed eight issues in its decision, the following focuses on the pandemic's impact on the rights and obligations of the parties under the License...