Coronavirus update: Cancellation and getting it right - our FAQs

The sudden emergence and expansion of Coronavirus, or COVID-19, is making headlines around the world and crashing stock markets as uncertainty grips governments, business and consumers.  Governments around the world are now taking drastic action in imposing obligatory quarantines and restrictions on movement.

Within the UK, the government has (at the time of writing) issued precise advice about what the public and business should and should not do, but it has not yet taken steps formally to restrict or impose protective measures. Such steps remain a real possibility, however, and should not be underestimated.

Service provider businesses and other bodies are now making important decisions as to how to deal with this situation and the serious risks involved. For businesses which provide a face to face service for consumer or business customers (particularly in the hospitality, leisure and retail sectors), the risks are extreme.

For these service providers, the question of how to manage cancellation requests and/or the risk of holding events or performing a service is assuming critical importance and the potential damage caused by getting this wrong is massive. Below we have therefore set out a Q&A which concerns the key questions service providers will have to answer, and which should be read in tandem with our Coronavirus guidance on the Top 10 HR Questions and Force Majeure clauses.

Do service providers have to cancel contracts against the backdrop of government advice?

Where contractual performance cannot take place as result of illegality, the default position is that a contract is rendered void.

Government advice against an action does not render that action illegal, however, and contractual performance is therefore possible – for example, the FCO has always advised against travel to certain regions (for reasons unrelated to the virus) but businesses and consumers have still legitimately travelled to and operated in those regions. This is the position at the time of writing.

As a result and unless there is specific provision in a business’s T&Cs or any other industry regulation (see below), in this situation service providers may not be bound, firstly, to cancel an event or service, or, secondly, to issue refunds to customers cancelling a contract.

Notwithstanding the strict legal position, there is of course a serious danger in adopting any line that may be seen as contrary to government advice in terms of the personal injury (see below) and reputational risk.

What happens if the government takes legislative steps to ban or restrict certain actions?

Upon the introduction of legislation preventing or enforcing certain actions (as is the case in Italy) an affected contract is likely to be void through illegality. In that situation, the relevant service would be banned and the service provider would by default have to give its customers full refunds (under the provisions of the Consumer Rights Act 2015 for the purpose of consumers, and under the common law doctrine of frustration for the purpose of businesses); this may be avoided by a cancellation, delay, or relevant variation clause in the applicable T&Cs, which would need to be fair and reasonable.

This is something that should be discussed with insurers in terms of obtaining compensation for any refunds that have to be paid. An Insurers’ response will depend on the relevant policy and insurance companies are already refusing to issue new policies unless they include COVID-19 exclusions.

What if customers cancel in light of government advice?

All service providers should carry out proper risk assessment in view of COVID-19 (see below) and, if necessary, impose further protective measures to protect their customers and staff. Against this and, as set out above, where contractual performance is possible in the absence of any preventative legislation, a service provider may have no obligation to issue refunds to any consumer or business customers who cancel themselves. There are exceptions to this for the purpose of consumers, however.

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 set out a range of requirements across a wide range of specific information points, particularly on how to cancel contracts. In general, for consumer contracts booked away from a service provider’s premises, a 14 day cooling off period must be provided to allow a consumer to change their mind and terminate the contract without penalty and obtain a refund. Services such as holidays, theatre, sporting and event tickets are exempt from the cooling off period, however.

The Package Travel and Linked Travel Arrangements Regulations 2018 (PTLTA) gives a right to consumer travellers to cancel package holidays subject to paying a termination fee. However, the PTLTA also gives consumers the right to cancel and receive a refund if there are unavoidable or extraordinary circumstances which may significantly impact the performance of the package. This refund obligation may be avoidable if proper protective measures are taken by a particular hotel in an affected area, but careful consideration should be paid to how the holiday was promoted to ensure that the substance of the holiday can be delivered as advertised.

Should service providers cancel services in light of government advice?

All service providers have a duty of care to customers and staff to keep them safe and to protect them from risks which are foreseeable in the context of their relationship. Service providers should therefore carry out a risk assessment of the situation and, as necessary, put in place appropriate protective measures.

The foreseeability of risk is a key factor as part of any assessment and therefore current government/medical advice about, and incidence of, the virus in a particular location or event is important, particularly as that advice may change significantly on a daily basis. This advice should in principle be helpful to businesses in their risk assessment but this is yet to be tested.

The actions of a service provider’s employees (careless or not) are key as the law of vicarious responsibility can make a business responsible for the actions of its employees, which includes coming into regular contact with the public on their employer’s behalf while at work. This could apply to independent contractors too, and the growth of home delivery services in the so-called ‘gig economy’ is an area that will present particular challenges and risks. Given this, the possibility of employees or self-employed contractors continuing to work while infected is a risk that must be planned for.

The situation is therefore complicated, especially where there is no legislative obligation and, worse, no government advice which is directly relevant to a service provider. In that situation, service providers should assess all advice which is available generally and which is indirectly relevant to any connected parties.

If a service provider cancels an event it will be bound to provide a refund to its consumer customers (pursuant to the Consumer Rights Act 2015), subject to any fair and reasonable cancellation clauses within the applicable T&Cs of the relevant contract. Its obligation to refund its business customers will depend only on the applicable T&Cs of the relevant contract.

What happens if a service provider gets it wrong?

It is highly likely that COVID-19 will lead to negligence claims against service providers on the basis that a service provider not taking adequate protective measures to keep its customers or staff safe when performing a service and thereby causing individuals to catch this disease.

On the other hand, if a service provider cancels a service unnecessarily, there is a real possibility that affected customers might argue that the service could and should have been provided (i.e. the risk assessment was wrong and the service provider could have put in reasonable protective measures).

In that event, customers may pursue claims against the service provider for damages equating to the additional costs which the claimant customers incurred in obtaining the service elsewhere and/or any other losses they suffered as a consequence; this risk will depend on the applicable T&Cs, in particular any cancellation, limitation or force majeure clauses.

To sum up…

All service providers should consider the risks and possibility of cancellation very carefully and seek legal advice if in doubt. Getting this wrong could be disastrous as, in an age of social media and viral consumerism, commercial decisions must be based on a proper consideration of reputational risk, as well as legal and other forms of risk.

More generally, all companies would be well advised to demonstrate that their organisations are fully abreast of and implementing advice from regulatory, government and trade and industry bodies on the proper precautions necessary.

As set out at the beginning of this article, our Employment team have published an FAQ on the Human Resources implications of COVID-19 and we have also published guidance on Force Majeure clauses, which should be read in conjunction with this article.