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The Importance of a Contract’s ‘Force Majeure’ Clause in the Wake of COVID-19

Thinking of how this pandemic has frustrated the operation of businesses across the globe, each day we learn more and more that it hasn’t just affected the infrastructure of businesses as a whole, but all of those small details within – like the force majeure clause of one simple contract, for example.

This brings me back to my time in law school, where we focused only a small portion of our contracts class on the force majeure clause. I recall being fascinated with its purpose, but admit that I never thought it would come to the forefront of the pandemic we are facing today, or more, that we as attorneys would be tasked with the job of interpreting the strength and plausibility of this clause’s effect in non-performance of a contract. 

For those who may be unfamiliar with the what a force majeure clause is; it is a common clause found in contracts that allows parties to assess the risks of certain events that may impact the performance of terms in a contract. The events that are typically covered in such a clause are acts of God, natural disasters, acts of terrorism, and the inevitable catch all – “other events beyond the control of the parties.”

Because the COVID-19 pandemic has frustrated the performance of many contracts, both for the individual and the business, we’ve prepared a few brief tips to help you assess your pending contracts and determine whether the force majeure clause can be relied upon for a lack of performance, or inability to perform under the contract.

1.    Determine your goal in invoking the force majeure clause.

Is it because of non-performance or a monetary obligation? Finding this purpose at the outset will help you determine whether the clause is actually applicable to your situation. Keep in mind, most force majeure clauses only relate to non-performance and non-monetary obligations. Therefore, for example, you cannot use a force majeure clause to get out of paying your rent. Additionally, it usually only applies as a “temporary” excuse of performance. The parameters of this are wholly dependent on the circumstances and the language in your contract so it is important to determine your goals early on.

2.    Review and interpret the specific language of the force majeure clause in your contract.

Is it broad or narrow? Does it specifically include the words “pandemic” “epidemic” “health crisis” or similar? Does it include the common catch all “all other events beyond the control of the parties?”

Because typical force majeure clauses strictly apply to natural disasters and the like, the language in your clause will determine how strong of a defense you will have. The issue with this clause and its extremely uncommon use is that the clause itself is often drafted in the broadest sense, or because of it being a rarity, it may be overlooked and often regurgitated from one contract to the next. With this, there could be concern that it is in fact, too broad, and does not include the necessary language to cover this “pandemic.” There is always the ability to use the above catch all, but it could face some potential scrutiny. If there is no force majeure clause (or similar provision) in your contract, you can look to secondary sources and judicial precedent to see how to handle the issue of non-performance.

3.    Remember that the events protected under the force majeure clause MUST be unforeseeable.

It may seem obvious that the COVID-19 pandemic was unexpected to all; however, in this instance, the term “unforeseeable” may be interpreted strictly. As a country, we were made aware of this pandemic and its possible spread to the US months before its actual arrival here.This could impact the use of the force majeure clause for contracts that were entered into after the first news of the pandemic. By way of example, if you’ve entered into a contract in the end of February, questions may arise as to your knowledge and willingness to risk facing potential consequences due to COVID-19 spread- such as creating illegalities, impossibilities, etc. concerning performance under the contract. Pinpointing the time of execution of the contract, or arrangement of performance is crucial in determining how to use this clause to your advantage.

Lastly, while public policy is generally a weak basis for an argument, particularly in breaching a contract, under the present circumstances, force majeure clauses could be interpreted very broadly in accordance with the global imperative to stop the spread of the virus. If complying with a contract requires close personal contact, or in any way increases the risk of spreading the virus, it seems unlikely that a court will fault non-performance. To put in another way, if an individual breached a contract in an effort to comply with the goals of the quarantine, even if not specifically mandated by a statute or executive order, it seems courts are likely to be lenient in excusing non-performance.

More information on handling cases of breach of contract, or excuse under the force majeure clause will continue to develop. If you have any questions or require any guidance on your pending contracts, feel free to reach out to us.

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