The ‘Force Majeure’ Clause, COVID-19 and Your Business: What you Need To Know by Attorney Rocky Cabagnot
COVID-19 also known as the ‘Coronavirus,’ the global pandemic, is beginning to spread through the US and into both North and South Carolina. As a result, many local organizations and businesses are having to cancel events (you can review a prior Hull and Chandler blog post regarding COVID-19 Event Cancellation policies at http://www.hullandchandler.com/blog). Additionally, as a result of COVID-19 (both directly and indirectly), many local businesses will not be able to perform their contractual obligations. If your business is suffering because of COVID-19, now might be the time to (a) take out your contracts to see if you have a ‘force majeure’ clause; and (b) if so, determine if COVID-19 qualifies as a ‘force majeure’ to excuse performance of your contractual obligation.
What is ‘force majeure?’
Force Majeure is French for ‘superior force.’ When this term is affixed to a contract, it’s a provision that relieves the parties from performing their contractual duties when certain circumstances arise beyond their control. Sometimes these contract clauses are called ‘Acts of God.’ Review your contract for either the terms “force majeure” or “Acts of God.” If you don’t see those terms, you will need to look for another way to excuse failure to perform. One such means to is the doctrine of ‘frustration of purpose’ or the doctrine of ‘impossibility.’ Regardless, if you do have the term ‘force majeure’ in your contract, then it begs the following question:
Does COVID-19 qualify as a ‘Force Majeure’ ?
Every ‘force majeure’ clause provides a description of the types of events that qualify. For example, a typical ‘force majeure’ clause will include: hurricanes, floods, earthquakes, avalanches, labor strikes terrorism, war, civil disorder, government regulations, fire, and (yes) medical outbreaks or epidemics.
So does your ‘force majeure’ clause have terms like ‘pandemic,’ ‘epidemic’ or ‘public health emergency’ as a qualifying event? If so, ,you may be able to successfully argue that COVID-19 is a qualifying event. Perhaps your ‘force majeure’ clause lists ‘declaration of national or regional’ state of emergency as a qualifying event? If so, you may be able to successfully argue that the President’s Declaration of national emergency (or Governor Cooper’s declaration of state emergency) qualifies as a ‘force majeure’ event.
Courts generally interpret ‘force majeure’ clauses narrowly, and only the events listed and events similar to those listed will be covered. Of note, however, is that many ‘force majeure’ clauses have a ‘catch-all’ phrase such as ending the list of qualifying events with ‘and any other events, including emergencies or non-emergencies,’ and ‘or any other emergency beyond the parties’ control’ to cover other, unforeseeable events. As to whether, these ‘catch-all’ clauses can help you qualify COVID-19 as a ‘force majeure’ to excuse performance of the contract – it all depends. While some may say COVID-19 was unforeseeable, others may say that previous global outbreaks like H1N1 or SARS makes a pandemic foreseeable.
Be aware that even if COVID-19 qualifies as a ‘force majeure’ in your contract, you need to be aware of any notification requirements. Some ‘force majeure’ clauses require a couple of days notice and others may require that you provide immediate written notice and take all reasonable commercial steps to mitigate the impact and complete performance as soon as possible.
As you can tell, determining whether to invoke a ‘force majeure’ clause or determining whether the clause is even applicable is not an easy task. It is advisable that prior to communicating to the other contractual party that you consult with legal counsel.