Force majeure (a French term that literally means ‘greater force’, is related to the concept of an act of God or an event for which no party can be held accountable. It is a common clause in contracts which essentially frees both parties from liability or obligation when an unforeseeable circumstance or event occurs that is beyond the control of the parties and that prevents one or both parties from fulfilling their obligations under the contract. Some examples can include war, strikes, natural disasters, riots, epidemics, etc.
With the pandemic still real, the clause is popping up from hotel reservations, to leases, to construction projects, concert and game tickets, as well as in family law (job loss affecting income- school closures and parenting plans), travel etc. and when “unforeseen circumstances” arise. The question you will see is whether both parties can invoke it or if just one party bears the burden of the bargain. The other topic is whether the words “acts of god” covers pandemic, epidemic, as well as compliance with local government guidance and order vs CDC or other standards. When does forfeiture occur and how does it happen?
Events Capable of Constituting Force Majeure
The following three criteria must be met in order to constitute force majeure:
- the circumstance or event should be beyond the reasonable control of the affected party or parties.
- The circumstance or event must have prevented, hindered or impeded the party or parties to perform the contractual obligations.
- the affected party or parties should have taken all reasonable steps to attempt avoidance or mitigation of the event or the consquences fo the circumstance or event.
The Event
Most force majeure provisions contain specific examples of unanticipated events along with “catch-all” language with respect to events like “and such other events as are outside the parties’ control”. In these types of contracts where ‘pandemic’ is not specifically included in the list of events, but catch-all language is, it is clear that a pandemic such as COVID-19 would qualify as force majeure under such a provision. One must keep in mind that the relevant force majeure event need not be COVID-19 itself. It could potentially be relevant to the consequences of COVID-19 and its impact upon the ability of the affected party or parties to fulfill its contractual obligations instead.
Performance
This criterion will be affected by the degree of impairment of the party’s ability to perform the obligations under contract. There must be a causal link between the force majeure event and the party’s inability to perform. It might be more difficult to rely upon a provision that requires the party to be prevented from performing the contractual obligations than impeded or hindered.
For example, if a party is unable to perform a contractual obligation due to having to self-isolate an office or a team due to a COVID-19 outbreak at the workplace, it is likely that this would have the necessary impact and causal link to qualify as a force majeure event, provided the party affected took all the reasonable measures. Another example that would likely not result in a force majeure event qualification would be if there was a disruption that only impacts the profitability of a contract unless expressly stated in the contractual force majeure provision.
responsibility to mitigate
A party will most likely need to show that it has taken reasonable steps to avoid or mitigate the event and its consequences and also show that there are no alternate methods for performing under contract, when seeking to prove a force majeure provision. The reasonableness of a mitigation measure will be considered in light of any additional costs and burdens that the party would have to incur, as well as the availability of alternative resources, suppliers, etc. and the overall impact of any delays that the alternative methods would have upon the contractual obligations.
Notice requirements
Typically, the affected party would be required to notify the other party via the issuance of the right to relief for force majeure under the contract notice which would include the anticipated consequences and duration of the event and any other required evidence. Some contracts also include a ‘time-bar’ clause that requires the party to provide the notice within a specific time frame from when the affected party first became aware of the event. If this notice is not issued during this time period, it would result in a loss of entitlement to claim.
Consequences of claims
In practice, most force majeure clauses do not excuse a party’s non-performance entirely but only suspend it for the duration of the force majeure event. Extension of time to perform those obligations or suspension of performance during the force majeure event are typical remedies. In some cases, some provisions may entitle the parties to terminate the contract entirely.
In conclusion, the issue of proving COVID-19 as a force majeure event under various contracts is a complicated one. It is important to consult with experienced and competent legal counsel if you need guidance navigating the unprecedented obstacles of doing business, staying in business, traveling, leasing, purchasing real estate or real estate projects, etc. in the midst of a global pandemic. Contact Us if you need legal advice or counseling regarding your contract.