The COVID-19 pandemic has created growing concern over contractual performance in our global economy, as we all struggle to assess the impact of this rapidly-evolving catastrophe. Companies should immediately and carefully review their critical contracts to evaluate their rights and responsibilities. This includes assessing the applicability of force majeure provisions and whether notice obligations have been satisfied where performance has been delayed or rendered impossible by unforeseeable or uncontrollable events. Companies and their counsel should also be aware of and carefully evaluate compliance with relevant and important extra-contractual common-law obligations, such as the duty to mitigate damages and the obligation of good faith and fair dealing. Notwithstanding whether a contract involves supplying parts or finished products, or services such as construction or professional services, businesses should consider the following questions and considerations:
- Does the contract contain a force majeure provision, and what is the specific language of the clause?
- Does the contract specifically address contingencies such as government actions, shelter-in-place orders, pandemics, quarantines, and the like?
- Courts in most jurisdictions will look critically at the specific language of a force majeure provision, and will likely excuse nonperformance only when specifically referenced in the clause or when the specific circumstances are substantially similar to what the parties contemplated when agreeing to the language in the clause.
- In the absence of a force majeure provision, or one that lacks the necessary specificity to excuse performance, businesses should also consider the applicability of the common law doctrines of frustration of purpose, impossibility of performance and/or commercial impracticability. Critical review of the facts and circumstances underlying each contract is imperative.
- Does the contract impose specific procedural and notice requirements before a non-performing party can rely upon a force majeure or other event excusing performance?
- Parties should strictly and timely comply with notice provisions in writing, and include an explanation as to how and why the force majeure or other event has caused the inability to perform as required by the contract. Even in the absence of specific notice provisions, timely and appropriate written notice should be provided to bolster your case that you have acted reasonably and in good faith.
- Notwithstanding reliance upon a force majeure provision, or common-law theories excusing performance, you should carefully consider, plan, and execute all reasonable and necessary actions to mitigate or avoid the harm associated with the nonperformance, and carefully document your efforts.