Force majeure

This force may not be with you

John Love, May 15, 2020

The force majeure provision is one that both parties in a contract hope they never have to use. Because if they do, it means that we may face, as Bill Murray in Ghostbusters put it, “human sacrifice, dogs and cats living together, MASS HYSTERIA,

The current COVID-19 pandemic shines a light on the use of force majeure. The forced shutdown of the economy has left businesses unable to meet financial and contractual obligations. Unless the government has stepped in to provide clear relief and guidance about a particular issue, businesses are left to fend for themselves.

Of course, we all hope that a dispute resulting from a crisis can be resolved in a way that is beneficial to all parties. But that seldom happens. Often, one party to a contract peruses its terms (assuming there is a written contract) to determine if there is a way out, perhaps a termination clause. And they might stumble on that one provision they never thought to exercise before – the force majeure clause.

“Force majeure” is a French phrase (the literal translation is “superior force”) used in contracts to identify unforeseeable circumstances that prevent a party or both parties from fulfilling contractual obligations. Courts will not imply the existence of a force majeure clause – it needs to be included by (and preferably negotiated by) the parties to the contract. The specific language used in a force majeure clause is extremely important – courts will not simply assume that the existence of the provision is meant to cover all unforeseeable events.  Events that the parties want to include should be specifically identified.  Here’s where the luxury of hindsight comes into play – no one knew about COVID-19 before a few months ago, and unfortunately to most of us the concept of a pandemic or epidemic seemed to be the stuff of Hollywood, not reality.

So many businesses and people are left asking − does my force majeure clause apply? We’re looking for some key words here, and the following might work:

  • Epidemic or pandemic
  • Virus
  • Public health event or crisis
  • Social and/or business interruption
  • Supply interruption
  • Government order or requirement

 

The above list is certainly not exhaustive, so as is the case with any article discussing a legal topic, we highly recommend that you seek advice from a qualified attorney. Even if you have some of the above key words in your force majeure clause, there are still some looming questions. For example, is a “recommendation” made by a government authority the same as an “order” or a “requirement”? What if two branches or levels of government, let’s say the county level and the state level, are issuing inconsistent guidance or requirements? What if some supplies are available but not enough? What if my force majeure clause talks about a pandemic but not an epidemic? What’s the difference? A qualified attorney should be able to help guide you through your coverage and how the current real-world circumstances might apply.

Other common questions regarding force majeure clauses revolve around catch-all phrases, such as “any other event similar to the foregoing” or “any other event outside the reasonable control of the parties.” If the parties have a catch-all phrase such as these, they might think they’re covered. Unfortunately, existing case law could be interpreted otherwise, and we need to keep in mind that much of this case law was decided in connection with events that are wildly different than a pandemic. For example, courts will typically not include events by implication that are of superior quality or vastly different than the enumerated list of events.  (By superior quality, think something like much more ominous or level 10 pre-apocalypse rather than level 5.) Historically, courts are also reluctant to include events that might be considered foreseeable into a catch-all. And yes, this raises another question – was the spread of COVID-19 foreseeable? Is the warning of a hypothetical crisis enough to elevate it to the level of foreseeability?

Obviously, the interpretation and application of force majeure clauses are likely to change in light of recent events and become an evolving area of law. Some courts may consider public policy concerns in a way that they didn’t before. Unfortunately, this means that there is currently little legal certainty.

Finally, if you do plan to exercise any rights in a force majeure clause, be careful to comply with any notice or other requirements. Even with regard to giving notice we have some potential issues. For example, if I need to give notice to the other party within five days of the force majeure event, when exactly did the pandemic begin? Was it when we first heard about its emergence on the other side of the globe? Or was it the declaration by the World Health Organization? Or something else?  Prompt action will be important.

The best approach, without a doubt, is for parties to work together on a resolution or approach moving forward that will benefit everyone involved. Careful planning and the assistance of an attorney may be crucial to proceed. If you have any questions about your contract, whether you have a force majeure provision, if it applies, or how to enforce it, you should also strongly consider engaging legal counsel to assist you. Also note that you may have other avenues of relief through UCC (Uniform Commercial Code) rules, common law, insurance, government programs, and more.