Force majeure has been a hot topic since the onslaught of COVID-19. Businesses and individuals across the U.S. and internationally have been looking to their attorneys to understand their rights and recourse regarding contractual performance – or more than likely, non-performance. Generally, invocation of force majeure may not excuse non-performance to the broad extent that many people think.
Depending on the jurisdiction, a pandemic, government action, or something similar may need to be specifically enumerated as a triggering event in a force majeure clause. Some jurisdictions allow catch-all language to apply, such as “or other similar events” only if the event in question is indeed similar to an event specifically mentioned, and in those cases it may not be sufficient to merely say, “and other events beyond the Party’s control” to try and catch any events not specifically listed.
Generally, whatever actually caused the non-performance must be unforeseen as well. An example of this would a COVID-19-related factory closure in China causing your supplier to not deliver goods as promised. This may not qualify as unforeseen because while the global effects of COVID-19 may have been unforeseen, a factory closure generally is not, especially if the supplier could have obtained the goods elsewhere, even at a higher price. Loss of revenue, market fluctuations, and other economic factors generally are not considered to be unforeseen.
Finally, the party invoking force majeure must comply with contractual notice provisions, such as providing notice to the other party of potential non-performance within a fixed amount of time as set forth in the contract.
Even a successful invocation of force majeure, however, may come with certain limitations. For instance, the clause may only provide a defense to non-performance for the duration of the force majeure event, or certain obligations – most commonly payment obligations – are carved out, i.e. you cannot invoke force majeure to avoid paying for goods or services.
If a contract does not contain a force majeure clause, there may be other contractual language that excuses performance, allows for partial performance, or allows a party to terminate the agreement if certain circumstances exist. This language may impliedly include events related to COVID-19 and the resultant business disruptions.
The defenses to contract of impossibility, impracticability, commercial impracticability under the UCC, and to a lesser degree, frustration of purpose may also be available as defenses for non-performance should a force majeure argument fail.
Every contract is unique, and many jurisdictions differ in their interpretation and application of force majeure clauses. We recommend you consult your attorney who may review your contracts to be sure they are appropriately suiting your company’s purposes and that they conform to applicable legal requirements.