Force Majeure, Acts of God and COVID-19
Since COVID-19 hit US shores, daily life has significantly changed for most Americans. From Federal Government announcements and all the way down to individual employer policies, we have all witnessed a number of changes and restrictions to our lives.
Work from home. Social-distancing. Shelter-in-place. Avoid mass transit. Forget international travel.
But around all of this, life must go on. And, legally speaking, so must contractual obligations. Or do they? Typically, the law will hold parties to the deal they have made. However, one exception – and phrase – that we are likely to start hearing a lot more about in the coming days, weeks and months, is “force majeure.”
Literally, the French phrase meaning “superior strength”, force majeure exists in contract law to forgive one party from performing its obligations if – loosely speaking – events beyond that party’s control make performance impossible. I say “loosely speaking” because in many written contracts the parties will have an agreed force majeure provision that sets forth when and how the obligation to perform will be forgiven. So, in these cases, the parties should start by looking at the wording of the contract and then asking:
First, can the party actually perform its obligations?
Put another way, chanting “COVID-19” and “force majeure” at a full moon will not give you a magic “get out of this contract” card. If you have an obligation to pay someone for their services, then unless an event of force majeure stops you from paying, you will still have to pay for those services. But, conversely, if COVID-19 prevents the other party from providing their services (say, due to restrictions on travel), they may be able to claim force majeure in order to relieve their obligations.
(Relatedly, a contract may state that an inability to pay does NOT constitute force majeure, but the obligation to pay may be suspended if the contracted for goods or services are not supplied.)
Second, what is the cause of the inability to perform?
If a supplier of widgets under-estimates its inventory and, in a moment of triage, decides to fill the highest paying orders, then the mere fact a pandemic is also occurring does not excuse failure to fill the lower paying orders. In reality, the “grey area” here is when both an event of force majeure (like a pandemic) and something within a party’s control (overestimating inventory) combine to prevent performance.
Another grey area is where one party relies on subcontractors to perform its obligations. If a subcontractor is unable to perform, does that excuse the main contractor? In many construction agreements the answer is no, but it will depend on each contract.
Third, what is the contractual remedy when there is force majeure?
Very generally, a force majeure clause will only forgive performance for as long as the force majeure event exists. In other words force majeure does not equal automatic termination of the contract. Again, the starting point is to look at the wording of the contract.
In summary, if you find yourself in a situation where a party to a contract cannot perform its obligations and is claiming force majeure (whether it’s you or the other party), start by looking at the wording of the contract. After that, if the parties cannot agree, you may want to consult an attorney. We expect to see a sharp increase in litigation over force majeure clauses in the coming years.
For assistance concerning force majeure or any other contractual matter please contact Chris Fladgate.