In Porter Airlines Inc. v. Nieuport Aviation Infrastructure Partners GP, 2022 ONSC 5922, the Ontario Superior Court of Justice considered, among a series of complex issues in the dispute, if the COVID-19 pandemic constituted a force majeure event under a licence agreement (Licence Agreement) between Porter Airlines Inc. (Porter) and Nieuport Aviation Infrastructure Partners GP (Nieuport).

The Court held that the force majeure clause was not engaged. Porter was held in breach of contract and ordered to pay damages for failing to pay fees to Nieuport during the pandemic.

Background

Nieuport is the owner, manager and operator of the passenger terminal at Billy Bishop Toronto City Airport (Billy Bishop), and Porter is a regional airline operating out of Billy Bishop. Pursuant to the terms of the Licence Agreement, Nieuport and Porter have a contractual relationship whereby Porter pays fees to Nieuport to operate an air carrier business and use the terminal at Billy Bishop based on the number of daily slots¹ allocated to Porter (Terminal Fees).

Despite Billy Bishop remaining open for operations (with enhanced pandemic protocols), Porter suspended operations on short notice on March 20, 2020, in response to the onset of the pandemic and the reduced demand for travel. Shortly thereafter, Porter advised Nieuport on March 27, 2020, that the pandemic constituted a force majeure event under the terms of the Licence Agreement, relieving Porter from its obligations to pay Terminal Fees.

Court decision

One of Porter’s arguments is that it was entitled to relief as a result of the pandemic, as the pandemic engaged the force majeure clause under the Licence Agreement, which relieved Porter from its obligations to pay Terminal Fees.

Force majeure

The Court highlighted that force majeure is not a term of art; what triggers a force majeure event depends on the interpretation of the clause at issue. The Licence Agreement contained the following force majeure clause:

Whenever and to the extent that either party is bona fide unable to fulfil or is delayed or restricted in fulfilling any of its obligations under this Licence Agreement by an event of Force Majeure, such party shall be relieved from the fulfilment of the part of its obligations affected by Force Majeure for the duration of such event of Force Majeure.

Porter argued that the pandemic, and the associated government orders, restricted it from fulfilling its payment and notice obligations because, despite its reasonable commercial efforts, its ability to operate at the terminal and earn revenues to pay the Terminal Fees was wholly disrupted.

The Court interpreted the force majeure clause and held it was not engaged by the pandemic. Although the Court accepted that the pandemic caused a decline in demand for air travel that may have made operating at Billy Bishop commercially impractical, Porter did not establish that the pandemic restricted it from fulfilling its payment obligations to Nieuport.

The Court noted that generally, a force majeure clause operates to discharge a contracting party when a supervening event beyond the control of either party makes performance impossible, not just commercially impractical, specifically noting that “the fact that a contractual obligation has become more expensive to perform, even dramatically more expensive, is not a ground to relieve the party of its obligation on the ground of force majeure.” The Court determined that for the force majeure clause in the Licence Agreement to be engaged, the pandemic needed to restrict Porter from fulfilling its payment obligations.

When Porter decided to cease commercial operations it made a business decision, one that in the Court’s view may have been commercially reasonable. However, the pandemic and the government orders did not bar Porter from operating – Porter was the only airline in Canada to suspend all commercial operations between March 2020 and September 2021. The Court highlighted that although Porter’s ability to earn revenue was affected and that it may have become commercially unreasonable to continue operating at Billy Bishop, nothing delayed or restricted Porter’s ability to pay Terminal Fees, and there was no requirement that the payment of the Terminal Fees be derived from Porter’s operations at Billy Bishop.

The decision has been appealed to the Ontario Court of Appeal.

Conclusion

Force majeure clauses are generally engaged when an unexpected event renders performance impossible rather than commercially unreasonable. However, the particular wording of the force majeure clause in the agreement is paramount, with the Court engaging in substantial analysis to distinguish the force majeure clause in the Licence Agreement from the clauses cited by Porter. When drafting force majeure clauses, parties should be careful to negotiate for clauses that not only consider events that result in an inability, delay or restriction from performing their obligations, but also events that make performance commercially impracticable or, alternatively, negotiate provisions that adjust obligations when a force majeure event makes performance commercially unreasonable.

For more information, please reach out to co-authors Kurtis Parcells, Ben Iscoe and Mike Beairsto.

1. Although not defined in the License Agreement, a “slot” corresponds to a landing or takeoff permission to use airport infrastructure on a particular date and time. ↩