Not three weeks ago – at a time when COVID-19 was but a distant crisis – the Centers for Disease Control and Prevention (CDC) forewarned that the coronavirus’s arrival and proliferation in the United States was not a matter of “if,” but rather “when.”
As federal, state, and local governments race to contain its spread, it is certain that significant disruptions will occur in the private sector.
Part and parcel to these disruptions is the ongoing challenge parties face to perform under an existing contract. In preparation for such complications, parties should not only become reacquainted with such contracts, but also determine whether the contract contains a force majeure clause on which they may rely.
What Is a Force Majeure Clause?
A force majeure clause (French for “superior force”) is a contractual risk allocation provision that intends to excuse parties’ performance when certain circumstances beyond their control arise, making performance inadvisable, impossible or commercially impracticable.
Force majeure does not denote a general, common law doctrine. It is an express contractual mechanism negotiated between the parties that must be included in the contract itself. Absent such a provision, parties must be left to the typically unforgiving, conservative devices of the common law doctrines of “impracticability” and “frustration of purpose,” which rarely excuse performance.
Is COVID-19 a Force Majeure?
Whether COVID-19 may be considered a force majeure for purposes of excusing a party from a contractual obligation depends almost entirely on the express language of the provision and the circumstances it seemingly anticipates. Even when force majeure clauses are present, courts across various jurisdictions have traditionally interpreted such clauses quite narrowly.
Broader verbiage such as “act of God” or “impossible circumstances” may arguably cover COVID-19, though words such as “pandemic” and “disease” are seemingly more likely to make COVID-19 stand stronger as a proper excuse. In any case, there must be a causal link between the force majeure event and the failure to perform.
What Kind of COVID-19 Disruptions Can Force Majeure Clauses Cover?
The force majeure clause’s potential application in COVID-19 disruptions is not only a question of type, but also one of magnitude—the extent to which one’s ability to perform is practically impacted and hindered. It is a qualitative, threshold determination informed by the express language of the clause itself. Thus, it is important to revisit your contract and note the particular verbiage of the clause and the types of impacts it deems excusable. Does “substantial inconvenience” constitute a proper excuse? Or does the clause place the bar less forgivingly higher, excusing performance only under circumstances where one’s duty is “rendered impossible.”
What Can You Do to Prepare?
Do not wait. Just as certain as COVID-19’s arrival, significant business disruptions are not a matter of “if,” but “when.”
If a party is faced with disruptions that prevent it from fulfilling its contractual obligations, it must be prepared to give proper notice and to mitigate any damages resulting from non-performance. In short, diligent preparation is a party’s best medicine.
Parties should consult with legal counsel about their existing contracts and discuss whether their force majeure clauses can provide appropriate protections. They should also explore whether other methods of avoiding contractual obligations may give the party a more desirable exit route.