As the novel coronavirus (“COVID-19”) rages on, businesses are already feeling unprecedented disruptions on a global scale. As these disruptions continue, companies are assessing their contractual obligations in preparation for delayed or canceled performance. One question many companies now face is whether COVID-19 is a force majeure event.
Force majeure provisions excuse a party’s nonperformance when an extraordinary triggering event prevents a party from fulfilling its contractual obligations. While there is no actual one definition of force majeure, these provisions often excuse performance during events that constitute “acts of God,” “acts of government,” and other “unforeseen circumstances” beyond a party’s control. A contract can be terminated due to force majeure if the force majeure event makes it impossible to achieve the purpose of the contract. The party invoking the provision must demonstrate a causal connection between the force majeure event and the party’s failure to perform, meaning COVID-19 must have prevented the party from fulfilling its contractual obligations.
Whether COVID-19 can excuse performance depends largely on the language of the particular contract. While uncommon, a force majeure provision referencing epidemics or pandemics is very likely to extend to COVID-19 since COVID-19 has been defined as a “global health emergency” and a “pandemic” by the World Health Organization. It is also likely that a force majeure provision that excuses nonperformance as a result of an “act of government” would include COVID-19, given that most states have declared a state of emergency and President Trump has declared it a national emergency. Additionally, state restrictions on travel, business operations, and large gatherings have the potential to allow for the invocation of a force majeure clause not triggered by previous pandemics.
A company wishing to invoke the force majeure provision should inform the other party as soon as possible. Many force majeure clauses have notice provisions requiring notice within a certain timeframe. These notice provisions also often dictate the form of notice required. Additionally, the party wishing to invoke the force majeure provision should take reasonable measures to mitigate the losses of the other party.
If your contract does not contain a force majeure clause, other options may still be available to excuse performance, such as the defenses of impossibility and impracticability. Businesses might be able to argue that contractual performance is impracticable or impossible because of extreme and unreasonable difficulty, expense, injury or loss involved. However, impossibility/impracticability defenses are fact intensive inquiries and must be assessed on a case-by-case basis.
As the COVID-19 outbreak continues to disrupt business operations, businesses must carefully review force majeure provisions in their contracts. Before taking any action, it is important to understand your legal rights and responsibilities. At Manning Fulton, we stand ready to assist you. If you have any questions related to your contractual obligations, please contact Joe Fields or your Manning Fulton relationship attorney.