Coronavirus & Force Majeure Clauses in Contracts

With most epidemiologists and experts agreeing that the coronavirus pandemic is still in its initial stages, the legal challenges posed by the COVID-19 pandemic are already coming into focus. Events, meetings and conferences are being postponed en masse – such as Austin’s own South by Southwest (SXSW). Whether in leases, supply chain contracts, contracts between businesses and their clients or otherwise, the coronavirus pandemic has led and undoubtedly will continue to lead to a wide variety of breach of contract claims.

A common question we receive is whether the corona virus is an “Act of God” that excuses a party from performing a contract. In fact, under the law, extraordinary events (including, but not limited to, an Act of God) which interfere with legal obligations are called a “force majeure”. As such, many contracts contain a force majeure clause excusing partial or complete performance of a contract in the event of certain, defined extraordinary circumstances. Force majeure clauses seek to accomplish a common goal of contractual law: that is, apportioning risk among contracting parties in event of a breach, or failure to perform. A force majeure clause may allow for suspension of termination of the contract.

There is no single, standard force majeure clause. They vary widely – depending on a wide array of factors such as industry standards, leverage in negotiations, and your legal team’s experience with force majeure clauses. Many businesses are surprised to find that the force majeure clauses in agreements they have entered differ drastically from contract-to-contract. Unfortunately, when businesses are coming into an agreement and often assuming the best, force majeure clauses are often overlooked.

What is actually in my force majeure clause?

“Regardless of its historical underpinnings, the scope and application of a force majeure clause depends on the terms of the contract.” Zurich Am. Ins. Co. v. Hunt Petrol.(AEC), Inc. Zurich Am. Ins. Co. v. Hunt Petrol.(AEC), Inc. , 157 S.W.3d 462, 466 (Tex. App.—Houston [14th Dist.] 2004, no pet.). As such, the first question is necessarily “what is actually written in the force majeure clause?” Force majeure clauses will often list specific items which qualify as an event of force majeure. These most commonly include strikes, wars, fires and riots, but may also include such events as floods, rebellion, insurrection, labor disputes, strike, order or requisition by the government, terrorist threats or acts, and pandemics (or other national or regional emergency).

A force majeure clause which contains a specific inclusion of epidemics or pandemics would no doubt be a powerful clause through which to argue relief from contractual obligations. However, the inclusion of pandemics and epidemics in force majeure clauses is generally rare, though they are likely to become ubiquitous now.

Some force majeure clauses contain catchall provisions, such as “any other event beyond the reasonable control of a party”. Caselaw interpreting these provisions vary from jurisdiction-to-jurisdiction.

Isn’t the coronavirus pandemic an Act of God?

As mentioned earlier, this is a common question from clients. Among the list of events that qualify as a force majeure, many clauses will include an “Act of God”. Though common sense may suggest that a pandemic like the coronavirus pandemic is such an Act of God, the question is in fact highly factual-and-jurisdictional dependent. Some jurisdictions have ruled that an Act of God may be limited to forces of nature. See, e.g., McWilliams v. Masterson.McWilliams v. Masterson, 112 S.W.3d 314, 320 (Tex. App. – Amarillo 2003, pet. denied). Most jurisdictions have defined an Act of God as being necessarily unforeseeable. See, e.g, United States v. Winstar Corp.United States v. Winstar Corp., 518 US 839, 905–907 (1996). One glimpse at the debates raging in our public discourse today illuminates the fact that the level of foreseeability of this present pandemic is greatly disputed.

What is needed to trigger my force majeure clause?

Force majeure clauses have varying standards connecting the force majeure event to contractual performance. Did the force majeure event render contractual performance “illegal” or “impossible”? The specifics of the language matters. Legal standards for force majeure triggers range, in descending order of most stringent to least, illegal, impossible, impracticable, prevented from complying, hindered from complying and not reasonably possible.

What are the notice requirements of my force majeure clause?

Force majeure clauses may have varying notice requirements – sometimes specific (such as, say, a 14-day notice provision) and sometimes less specific (such as a “reasonably prompt” notice) – timeframes after the force majeure events in which the party invoking the force majeure clause must give notice to the other party. Notice requirements, in turn, are highly fact-specific. For instance, during this coronavirus pandemic, when did the force majeure event occur? Was it when it was declared a pandemic by the World Health Organization, or when the travel ban occurred, or when you actually learned about the virus? Analyzing the language of your force majeure clause’s notice requirement, and applying it to the facts will be key in determining whether proper notice was given.

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