Business Litigation, Real Estate and Construction Litigation
Force Majeure Provisions and the COVID-19 Pandemic
In the wake of the COVID-19 pandemic, businesses are starting to turn to an often-present, but seldom-cited, provision of commercial contracts: the “force majeure” provision. The strain from myriad issues ranging from a lack of available workforce to government orders shutting down non-essential businesses to disruptions in supply lines has resulted in some businesses being unable to meet contractual obligations and turning to force majeure provisions (sometimes referred to as “act-of-god” or “uncontrollable forces” provisions) in an effort to excuse their obligations.
Force majeure provisions are common in commercial contracts, including supply agreements and construction contracts, and where applicable may excuse a party’s inability to perform. The key to the enforceability and applicability of a force majeure provision is the specific language of the clause, as most force majeure provisions limit the covered events to those specifically listed in the clause itself. These enumerated events are typically events that are familiar (albeit unforeseeable) to the parties and often include, by way of example, unpredictable weather events such as hurricanes, tornadoes and floods and acts such as war, riots, strikes and governmental or civic orders.
While we have seen contracts specifically providing that a pandemic is a force majeure event, specific inclusion of that term is not absolutely necessary for a party to seek force majeure relief due to events related to COVID-19. To the contrary, a contract that does not list “pandemic” (or some similar term) as a specific event triggering the force majeure clause might still contain broad “catch-all” language that includes as an event excusing performance, for example, any event where the party is unable to perform due to forces or events beyond its control or for governmental or civic orders that adversely affect a party’s performance. Parties must also look to the language of the contract as well as applicable state law to determine whether performance must be rendered impossible, or merely more difficult, as a result of the force majeure event.
In addition to force majeure provisions, other state-law arguments such as “impossibility,” “impracticability” or “frustration of purpose” will likely be invoked by parties seeking to avoid contractual obligations. Businesses should be cautioned, however, that economic hardship caused by performing under a contract is generally not accepted as a cause for these defenses. In all events, the outcome in each case will depend on the state law governing the contract and the specific facts and circumstances involved.
Businesses feeling the impact of the COVID-19 pandemic should review their agreements as soon as possible both as to substance and to ensure compliance with any notice requirements. Business that are in the process of negotiating contracts should also carefully review the language of the force majeure clause in the contract to determine how it deals with the impact of the COVID-19 pandemic, if at all.
This post is for information purposes only and is not intended as legal advice. Any business that has questions or concerns about the impact of the COVID-19 pandemic on existing contractual obligations or the negotiation of potential contracts should consult its attorney for advice.