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The coronavirus is causing a true Friday the 13th nightmare for many companies today. Yesterday the country began ardently practicing social distancing and self-quarantining to a degree never seen before, and many businesses are immediately facing an uncertain future.
One coronavirus-related question AGG litigators are getting often today is whether force majeure (“superior force”) or “Act of God” clauses justify the suspension of performance of their duties under contracts. The answer depends on the specific contract language, local law, and the causal connection between the pandemic and the parties’ ability to perform their contractual obligations.
Black’s Law Dictionary explains that a force majeure clause “is meant to protect the parties in the event that a contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by exercise of due care.” Force majeure clauses allocate risk between the parties when an unanticipated event makes performance impossible or impracticable.
While state laws vary, every jurisdiction respects parties’ right to contract. So, disputes over application of force majeure clauses start with the specific language used in the contract. A force majeure lease clause may contain a list of specific events which constitute a force majeure, it may be more vague to include anything out of the parties’ control, or, the clause may define specific events and then include broad “catch-all” language such as, “for other reason whether of a like nature or not that is beyond the control of the party affected.” Generally speaking, the more specific the clause, the more limited application it has – if the actual occurrence is not on a long list of specific events, it is not likely a force majeure. Most clauses specify that they are only invoked when performance becomes impossible; some have more liberal language requiring only the hindrance or delay of performance.
As it pertains to the coronavirus, any broad force majeure clause language should apply since March 11, when the World Health Organization declared it a pandemic. It is unlikely any court would decide that any private party has caused the coronavirus. And, many force majeure clauses specifically include “epidemic” or “pandemic” in its laundry list of qualifying events. Even without that specific reference, the coronavirus should qualify under most force majeure clauses due to the government imposed travel bans and quarantines.
Most courts require the party claiming force majeure to show that the event was not foreseeable and directly caused the failure to meet its contractual obligations. While this is often a close call in weather-related natural disasters – the geographic scope and actual impact on the stream of commerce of a storm is often debatable – a pandemic resulting in mass closures of all public events and schools should not be a close call. This is not a normal risk of doing business. The law does require the mitigation of damages, and many business can continue to operate at some, if not full, capacity.
As in any contract matter, strict compliance with the technical requirements of the contract may be necessary for a party to invoke a force majeure clause. Typically a contract requires prompt notice of a claim of force majeure. Several courts have refused parties’ force majeure claims when they failed to provide adequate notice under the contract.
Questions regarding force majeure clauses are one of many issues that arise during challenging times for commerce, but with vigilant adherence to their contracts and applicable law, parties can navigate these troubled waters successfully.
David J. Marmins is a partner in the Litigation section and the co-leader of Arnall Golden Gregory’s Retail industry team.