Eleanor Mitten & Sophie Phillips discuss Covid-19 and Parent/Student contracts – are you still liable for school and university fees during the ‘lockdown’?
Park Square BarristersIntroduction
The United Kingdom is experiencing unprecedented circumstances as a result of Covid-19. The current crisis is unveiling the difficulties businesses across a range of industries face with regards to performing their contractual obligations in such situations.
Many parents and university students want to know whether they are still liable for tuition fees as academic institutions have been forced to close due to the nationwide ‘lockdown’. In an attempt to fulfil these contracts, schools and universities are now offering remote learning, but is this enough to have satisfied their obligations?
This article considers the effects this pandemic has on parent and student contracts, the liability of tuition fees and whether remote learning is a reasonable alternative.
Force Majeure
A ‘force majeure’ is an unforeseen event or unforeseen circumstances which prevent one or more parties to a contract fulfilling their obligations under that contract. If a contract contains a force majeure clause, a party that defaults on its obligations may seek to rely on that clause to evade liability for its non-performance.
It is likely that schools and universities will argue that the Covid-19 crisis constitutes a ‘force majeure’ and, where specific force majeure clauses exist in the contract in question, seek to rely on such clauses to evade liability for their inability to provide face-to-face teaching during the crisis. The question that then arises is whether the clause in question is applicable to such an event.
Generally, a force majeure clause will outline a specific list of events to which it applies. Those who draft such contracts will be aware that expression of one particular event might have the effect of excluding other events, and so there will often be a catch all provision to cover events of a similar nature which are not specifically referred to. Specific mention of disease-related events such as pandemics or epidemics will of course be of assistance in establishing that any force majeure clause is applicable to the Covid-19 crisis.
Arguably, a viral pandemic of this nature was a foreseeable event within our lifetime. The scale and impact of the Covid-19 crisis, however, may well be considered less
foreseeable – particularly with regards to the lockdowns enforced by governments in the UK and across Europe and the effect of these lockdowns on individual contracts. Such lockdowns are also far beyond the control of the parties to a school or university contract.
A force majeure clause may include specific reference to compliance with government requests. For a clause to be enforced in such circumstances, the government request must be independent of the affected party and beyond its control (Okta Crude Oil Refinery AD v Mamidoil-Jetoil Greek Petroleum Co SA [2003] EWCA Civ 1031). In respect of the present ‘lockdown’, both of these requirements are clearly satisfied.
In order to rely on a force majeure clause, the party seeking to rely on the clause must prove two things:
1. That the event in question falls within the clause; and
2. That non-performance was due to that event.
The burden of proof is therefore on the party who wishes to rely on the force majeure clause.
The test for interpretation of a force majeure clause is set out by the Court of Appeal in Coastal (Bermuda) Petroleum Ltd v VTT Vulcan Petroleum SA (‘The Marine Star’) [1996] C.L.C. 1510. The relevant consideration is the words used by the parties rather than the parties’ ‘general intentions’. It follows that Judges will look at the specific wording of a clause rather than trying to impute intention on the parties.
The party who has not fulfilled their contractual obligations due to the event in question must usually show that it took reasonable steps to mitigate the effects of the force majeure – for example, schools showing that they offered remote learning as an alternative to classes delivered in person. Whether the steps taken were reasonable will be a matter of fact in each case.
In consumer contracts, it is also important to bear in mind the principles relating to reasonableness as set out in the Consumer Rights Act 2015 when considering whether the clause in question is likely to be enforceable.
The effects of an enforceable force majeure clause will depend on the precise wording, but may include suspension of the contract for a period of time while the force majeure event is in progress, non-liability of the defaulting party for its non-performance, or the grant of the right to terminate the contract.
Frustration
In the absence of a valid force majeure clause, parents and students may rely on the common law doctrine of frustration for remedial action. This is where an event occurs after a contract is entered into rendering it impossible to fulfil the obligations under that contract. The party who is no longer able to carry out their obligations is then liable in damages to the other contracted party.
In order to rely on frustration, the event in question must satisfy the following requirements:
1. It must occur after the formation of the contract;
2. It is caused by no fault of the contractual parties;
3. It is beyond the contemplation of the parties when the contract was entered into i.e. it was not reasonably foreseeable; and
4. It changes the nature of the contract so as to make performance impossible and/or ‘radically different’ to that originally envisaged by the parties.
For these reasons, the doctrine of frustration has a higher threshold to that of force majeure making it harder to rely on. The courts have also confirmed that they are only willing to interpret circumstances which may invoke frustration very narrowly (J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] Lloyd’s Rep 1).
This being said, given the impact that the Covid-19 pandemic is having on schools and universities, and in light of the recent decision to impose a nation-wide ‘lockdown’, there would appear to be a substantial argument that frustration would apply in many cases. This is particularly so where subsequent changes in the law render the performance of such contracts illegal, which is an established basis for reliance on frustration. However, the courts may be reluctant to allow all of the parents and students in the country to seek redress for non-performance of a contract due to the relevant ‘floodgate’ arguments.
One of the main issues with relying on frustration to discharge a contract is that it will not be available where an alternative method of performing that contract is provided for (The Furness Bridge [1977] 2 Lloyd’s Rep 367). This is particularly relevant where schools and universities are now offering remote learning. Most cases involving frustration are dealt with on a case-by-case basis, with the overall circumstances and facts of the case being taken into account. It would therefore be up to the courts to
determine whether this would amount to fulfilment of their obligations under the contract and whether they are a reasonable alternative.
Where frustration is found to exist then the contract will end and the parties are entitled to any money paid under the contract before it was terminated. Section 1(2) of the Law Reform (Frustrated Contracts) Act 1943 specifically deals with the remedies available and explains that any money that was due before the frustrating event but that was not paid ceases to be payable. However, section 1(2) of the Act states that where a party has incurred expenses they are permitted to retain an amount up to the value of those expenses including any money that remains payable. Effectively, this means that where a school or university has incurred costs by for example setting up remote learning platforms or employing staff, they will be able to hold on to or recover the amount equal to those expenses.
Independent Schools and Universities
Whether there is any recourse for parents and students will, as ever, depend on the specific wording of the contracts in question and is likely to vary between institutions. Where there is no force majeure clause within the contract then parents and students may be able to rely on the doctrine of frustration, as has been discussed above.
Schools and universities should be doing all that they can to ensure students are not unduly affected by this pandemic. They will need to offer appropriate alternatives in order to satisfy their obligations under the contract to provide suitable learning and teaching. For many, this has come in the form of remote learning where students and parents can access various academic materials and documents via an online platform.
However, generally speaking, parents and students will not choose institutions purely for their academic reputations; they will also look at the full range of extracurricular activities on offer, and the institution’s facilities. Therefore, although providing resources for distance learning goes some way to discharging the institutions’ obligations, it may fall short of delivering the full benefit that was anticipated at the time the contract was made. In this instance, there is an argument that the contract has been frustrated – school and university closures, including all of their facilities, have rendered it impossible for any institution to fulfil its contractual obligations in their entirety.
Independent schools and universities may seek to remedy this issue themselves by offering reduced fees or payment freezes – the latter being effectively a suspension of the contract. However, there would be concerns that these institutions may come into financial difficulty due to lack of funding from fees (though this is more so from an
independent schools perspective than universities). Offering reduced fees may provide some relief in terms of cash flow, but lead to shortfalls further down the road. Payment freezes may help to ensure that the full fee amount is recovered later, but offer little assistance in terms of cash flow in the short term. Some schools, and indeed universities, are therefore likely to find themselves in a difficult position financially.
Schools and universities are able to access the government’s Coronavirus Job Retention Scheme, affording them some protection from financial difficulty during the crisis. Those signed up to the scheme are able to claim for 80% of furloughed employees’ wages – a saving which could then be passed on to parents and students via fee reductions.
In addition, 11 universities recently refunded tuition fees for the strike action which took place between 2018 and 2019. Universities that failed to offer refunds made ‘goodwill’ payments instead or offered different vouchers as a substitute. It may be that in this instance a compromise can be found with institutions agreeing to refund a certain amount or agreeing to a reduced fee. In any event, tuition fees are a form of investment and, like with any other contractual agreement, if one party is not receiving the services promised then they should be compensated for this.
Where the contract is deemed to have been frustrated and so brought to an end, but the student continues to carry on using the remote learning facilities, this leads to the question of whether payment should continue to be made, and if so to what extent. It is arguable that payment should be on a quantum meruit basis in that it should be less than what would have been paid for ‘in person’ teaching. This is because the student is not receiving the full benefit of either being in a classroom with all of the readily available resources, or going to lectures and seminars and having the ability to make use of facilities such as extensive university libraries.
The current situation is changing rapidly and frequently, and at present it is not clear how long this period of enforced closure will last for. It may be that the period of closure is of a similar length to academic summer holidays, and pupils and students return to their studies earlier than September as is usual (effectively taking this time off in lieu of a normal summer holiday). In that event, it may be argued that this length of time off would have been accounted for in the contract anyway, and so institutions may consequently argue that there is no entitlement to any fee reduction. However, it is entirely feasible that school and university closures could be in force for a period much longer than that of a normal summer holiday.
The picture is an uncertain one given the ever-changing nature of the Covid-19 crisis. Unfortunately, nothing is clear at the moment and until there is a definitive period for which the ‘lockdown’ will continue, the success of a possible claim either through force majeure or the doctrine of frustration is unknown. In any event, much will depend on the specific wording of any contract entered into.
Pupil Barrister.
Eleanor is a common law pupil who is currently undertaking her second-six.
Pupil Barrister.
Sophie is a common law pupil who is currently undertaking her first-six. Sophie’s pupil master is Matthew Smith.