December 11, 2020

What You Need to Know About Force Majeure Provisions During a Global Pandemic

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• Force majeure is employed as a contractual clause to absolve a party in the event that it is difficult or completely unable to perform due to circumstances beyond the party’s control.

• Careful legal analysis of your contract language, in the context of the applicable governing law, is crucial in determining whether the COVID-19 impact, or government measures implemented in response to the pandemic, will fit within the scope of your force majeure clause.

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The unprecedented economic turmoil resulting from the ongoing COVID-19 pandemic has created an urgent need to more carefully examine the application of force majeure clauses. Indeed, against this pandemic backdrop, many struggling businesses find themselves desperately seeking relief via force majeure clauses—most of which weren’t drafted with a global pandemic in mind. In fact, courts have been seeing cases coming in as early as March.1

Remarkably, some contracts lack any concept of force majeure whatsoever. And where they exist, such clauses are often overlooked as “boilerplate” clauses, lacking precise language which would carefully define anticipated event(s) and excused performance. Parties who neglect to include a carefully drafted force majeure provision in their contract are at a substantial risk that their inability to perform under the agreement due to causes beyond their control, such as a global pandemic, will constitute a breach.

In this article, we want to urge our readers who either (1) have businesses impacted by COVID-19, such that they are unable to perform contractual obligations, (2) or are in receipt of a counterparty’s notice of a force majeure event, to be proactive now—seek an experienced legal professional to quickly establish communication with counterparties and efficiently work through the processes we outline below.

Remember, careful legal analysis of your contract language in the context of the applicable governing law is crucial in determining whether the impact of COVID-19 or government measures implemented in response to the pandemic will fit within the scope of a particular force majeure clause.

Overview

First, a brief introduction to force majeure and its use in contracts is in order. Merriam Webster notes that force majeure translates from French as “superior force.”2 While no real, standard common law definition exists, as a civil law concept it is employed as a contractual clause to absolve a party in the event that it is difficult or completely unable to perform due to circumstances beyond the party’s control.

As a contractual concept, courts generally narrowly construe force majeure clauses and confine them to their express terms. Notably, industry and trade practices are also sometimes relevant to force majeure clause interpretation.

Keep in mind, a force majeure provision will not typically be “implied” into contracts.3 Some jurisdictions might be persuaded to do so, but that is not to be expected.

Also, in practice, the use of force majeure is highly variable across industry agreements. Indeed, one clause may work to completely excuse performance, while another clause is drafted to defer performance only until the force majeure event ends.

However, one can usually expect to find typical force majeure clause language defining a force majeure event by describing specific requirements that must be established, such as:

(1) the event was outside the reasonable control of the party,

  • the event was not reasonably foreseeable,
  • reasonable efforts or due diligence will not eliminate the impact, and
  • the event materially affects the party’s ability to perform.

Furthermore, there are commonly requirements imposed on the party declaring force majeure to mitigate damages and provide notice to the counterparty.

How We can Help if You Think Force Majeure Applies

Again, very rarely do force majeure clauses expressly list pandemics as excusable force majeure events. Rather, at least pre-COVID-19, they may refer to very broad or vague concepts such as “acts of God” or “any other emergency beyond the parties’ control.”

Significantly, the governing law agreed upon by the parties to the contract may affect whether requirements besides those expressly noted in their contract may be used in determining whether: (1) a force majeure event occurred, and (2) a party has properly invoked force majeure.

As such, if you believe that force majeure may be applicable to your circumstances, we recommend that you engage an experienced legal professional to review your situation and contract language to determine and/or advise on the following:

  • whether a force majeure provision exists at all
  • what specific events qualify for force majeure treatment
  • all other relevant terms and conditions (including governing law)
  • whether any parties’ performance under the contract will be impracticable or impossible (directly or indirectly) because of COVID-19 (as opposed to some other reason)
  • any steps necessary for you to implement in order to mitigate or reduce the COVID-19 impact on your ability to perform (and carefully document any steps taken to mitigate or avoid COVID-19 impact on your ability to perform
  • how to best timely comply with any notice requirements (this may include the production of substantiation and the specific method of notice delivery)
  • the potential consequences or downstream impacts to you when the counterparty suspends its performance once you notify it of a force majeure event

Similarly, if you are the recipient of notice of a force majeure event, a legal professional should carefully:

  • examine the force majeure event notice as to whether it falls within the scope of the contract’s provision and/or applicable governing law
  • consider whether the form and timing of the notice was adequate and proper
  • analyze the impact of any other applicable laws and facts
  • advise as to when and how to you should respond
  • explain whether your performance or payment under the contract is excused
  • advise you as to whether to terminate the contract
  • consider any and all downstream impact on other contracts—and whether you should provide a copy of the notice to other parties
  • determine to extent to which the counterparty has fulfilled its other obligations (i.e., finding an alternate solution)

Conclusion

Without question, COVID-19 has created significant hardships and challenges for many businesses under their contracts. If you are a party needing to invoke force majeure, or if you are a recipient of notice of a force majeure event, it is imperative that take the proactive steps we’ve outlined in this discussion.

Additionally, the pandemic should motivate parties negotiating new contracts to place greater emphasis on creating very carefully drafted force majeure clauses—rather than relegating them to boilerplate status.

If you have questions or concerns regarding force majeure provisions in the context of the global pandemic, contact our team at (410) 862-422.

Footnotes

  1. See e.g., Third Wave Farms LLC v. Pure Valley Solutions LLC, No. 6:20-cv-00069 (E.D. Ky. Mar. 20, 2020) (hemp farming company asking judge to void its contract with a hemp processor claiming that the coronavirus impact and the state of emergency declared in Kentucky and Oregon triggered their force majeure clause).
  2. https://www.merriam-webster.com/dictionary/force%20majeure.
  3. Commonwealth Edison Co. v. Allied-General Nuclear Servs., 731 F. Supp. 850, 855 (N.D. Ill. 1990).
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