No Exit: Force Majeure And Economic Risk Allocation During COVID-19

When COVID-19 was declared a global pandemic and various government restrictions were imposed, corporate deal parties and contractual counterparties immediately turned their minds to whether the pandemic would provide an exit mechanism from deals that had not yet closed or from contractual arrangements that were in effect at the time.

As we wrote in 2020, contractual parties began reviewing the force majeure provisions of their agreements to determine whether relevant contractual obligations were required to be performed during the pandemic. Deal parties examined their "material adverse change" (MAC) clauses to determine whether the effects of the pandemic on a target's business could allow that party to walk away from a negotiated transaction. As we discussed last year, 2021 saw the first Canadian litigation regarding MAC clauses and interim operating covenants as they applied in three significant transactions. The referenced Cineplex decision came shortly after,