A question I have been getting a lot in the past few weeks is, “What is force majeure?” And, “Does it apply in a pandemic?”
The answer, as usual, is, “It depends.”
Force majeure is an unforeseen event that could not have been avoided, but it is not defined by the law. Rather, it is defined by the terms of your contracts, and the definition can vary from one contract to another.
Similarly, whether a pandemic is a “force majeure event” is determined by the terms of your contract. The types of events that are covered by force majeure will usually, but not always, include a pandemic or the government’s response to the pandemic.
Below, I will answer these questions in more detail and discuss your best option in most situations where you cannot comply with your contractual obligations – renegotiate the terms of the contract whenever possible to avoid unnecessary litigation.
What is Force Majeure?
What is force majeure?
Many businesses and individuals who are suffering from the ongoing COVID-19 pandemic are wondering 1) whether the pandemic is an “act of God” that excuses them from performance under their contracts, or 2) can I enforce the terms of my contract if the other party defaults, citing a “force majeure” clause?
Force majeure is a provision that is found in many contracts – it is never implied into a contract, however. If force majeure applies, it is because the contract specifically provided for it. When it applies will depend on the language in the contract.
If your contract contains a force majeure clause, it may excuse both sides from their obligations (or, more likely, delay each side’s obligation) if an extraordinary, unforeseeable, and unavoidable event prevents one or both sides from performing:
A provision commonly found in contracts that frees both parties from obligation if an extraordinary event prevents one or both parties from performing. These events must be unforeseeable and unavoidable, and not the result of the defendant’s actions, hence they are considered “an act of god”.
A natural disaster (major earthquake, flood or hurricane) may be a force majeure if unpredictable
A rainstorm during an outdoor event is not – rain is a normal and common occurrence.
A war or riot may be considered a force majeure.
If your contract does not contain a force majeure clause, you will not be entitled to relief based on a natural disaster, although there may be other options that allow you to cancel or renegotiate your contract.
What does a force majeure clause look like?
Sample Force Majeure Clause
The specific terms of a force majeure clause will determine whether 1) you can get out of your contractual obligations or 2) you can enforce your contract with another party who is trying to get out of their obligations.
Although the language may vary from contract to contract (and is subject to negotiation when you enter the contract), force majeure clauses usually will include information on 1) what is force majeure for purposes of your contract, 2) what are the consequences of invoking the force majeure clause, 3) notice provisions, and 4) requirements to mitigate your losses and to resume your obligations under the contract as soon as possible.
1) What is force majeure?
Some force majeure clauses, such as the following example from the Public-Private Partnership Legal Resource Center, specifically list epidemics or pandemics as a force majeure event:
Events of Force Majeure shall include, but not be limited to:
(a) the following Natural Force Majeure Events:
fire, chemical or radioactive contamination or ionising radiation, earthquakes, lightning, cyclones, hurricanes, floods, droughts or such other extreme weather or environmental conditions, unanticipated geological or ground conditions, epidemic, famine, plague or other natural calamities and acts of God;
explosion, accident, breakage of a plant or equipment, structural collapse, or chemical contamination (other than resulting from an act of war, terrorism or sabotage), caused by a person not being the affected Party or one of its contractors or subcontractors or any of their respective employees or agents;
to the extent that they do not involve [country] or take place outside of [country], acts of war (whether declared or undeclared), invasion, acts of terrorists, blockade, embargo, riot, public disorder, violent demonstrations, insurrection, rebellion, civil commotion and sabotage;
strikes, lockouts, work stoppage, labour disputes, and such other industrial action by workers related to or in response to the terms and conditions of employment of those workers or others with whom they are affiliated save, when such event is directly related to, or in direct response to any employment policy or practice (with respect to wages or otherwise) of the party whose workers resort to such action…
Many force majeure clauses will include “political” as well as natural force majeure events:
to the extent they take place in [country], acts of terrorists, blockade, embargo, riot, public disorder, violent demonstrations, insurrection, rebellion, civil commotion and sabotage;
to the extent that they are politically motivated, strikes, lockouts, work stoppages, labour disputes, or such other industrial action by workers, save in relation to the [party], when such event is directly related to, or in direct response to any employment policy or practice (with respect to wages or otherwise) of the [party];
failure or inability of the [party] to obtain or renew any Consent, on terms and conditions as favourable in all material respects as those contained in the original Consent relating to the [party]’s Business (other than due to a breach by the [party] of any of such terms and conditions);
any action or failure to act without justifiable cause by any Competent Authority, other than a court or tribunal (including any action or failure to act without justifiable cause by any duly authorised agent of any Competent Authority, other than a court or tribunal);
expropriation or compulsory acquisition of the whole or any material part of the [party]’s System or Investor’s shares in the [party], except where such appropriation or compulsory acquisition is on account of contravention of law by the [party] or by the Investor;
any legal prohibition on the [party]’s ability to conduct the [party]’s Business, including passing of a statute, decree, regulation or order by a Competent Authority prohibiting the [party] from conducting the [party]’s Business, other than as a result of the [party]’s failure to comply with the law or any order, Consent, rule, regulation or other legislative or judicial instrument passed by a Competent Authority;
in relation to the [party], non-performance by a counter-party under a contract relating to the [party]’s Business by reason of an event or circumstance that would constitute a Political Force Majeure Event under this Agreement…
…breakdown of plant or equipment (unless itself caused by an Event of Force Majeure), or unavailability of funds, shall not constitute an Event of Force Majeure.
2) What is the effect of Force Majeure?
A force majeure clause will also contain an explanation of the effect of force majeure on the parties to the contract:
Either Party shall be excused from performance and shall not be in default in respect of any obligation hereunder to the extent that the failure to perform such obligation is due to a Natural [or Policitical] Force Majeure Event.
3) Are there notice requirements?
A force majeure clause may require that notice be provided to the other party or parties to the contract within a specified period of time, within a “reasonable” period of time, or as soon as possible after the occurrence of the event:
If a Party wishes to claim protection in respect of an Event of Force Majeure, it shall, subject to clause [ ], as soon as possible following the occurrence or date of commencement of such Event of Force Majeure, notify the other Party of the nature and expected duration of such Event of Force Majeure and shall thereafter keep the other Party informed until such time as it is able to perform its obligations.
4) Is there a duty to mitigate the effect of the force majeure event or to resume your obligations under the contract after the emergency has passed?
Depending on the language of the force majeure clause in your contract, it probably does not allow you to “get out of the contract” completely – you may need to mitigate the damage caused by the force majeure event and resume your obligations under the contract once the emergency has passed and to the extent possible. For example:
The Parties shall use their reasonable endeavours to:
(i) overcome the effects of the Event of Force Majeure;
(ii) mitigate the effect of any delay occasioned by any Event of Force Majeure, including by recourse to alternative mutually acceptable (which acceptance shall not be unreasonably withheld by either Party) sources of services, equipment and materials; and
(iii) ensure resumption of normal performance of this Agreement as soon as reasonably practicable and shall perform their obligations to the maximum extent practicable,
provided that neither Party shall be obliged to settle any strike, lock out, work stoppage, labour dispute or such other industrial action by its employees.
The bottom line is you must read the specific provisions of the force majeure clause in your contract to determine whether force majeure applies in your situation, what notice must be given if you intend to invoke the force majeure clause, and whether 1) you can cancel your contract, or 2) you must make reasonable efforts to mitigate the consequences of the force majeure event and honor the terms of your contract as soon as possible.
But, does your force majeure clause apply to a global pandemic like the COVID-19 outbreak?
Does Force Majeure Apply to the Coronavirus Pandemic?
Does force majeure apply to the current COVID-19 outbreak?
Again, it depends on the language of your contract. If there is no force majeure clause in your contract, it will not be “implied” as a matter of common law. To avoid a lawsuit for breach of contract, you must fulfill your contractual obligations, renegotiate your contract, or find another legal theory that will excuse performance under the circumstances.
Contracts May Expressly List “Epidemic” or “Pandemic” as Examples of Force Majeure
Some force majeure clauses expressly include disease outbreaks, epidemics, or pandemics as force majeure events. In the example cited above, “epidemic” is included in the definition of force majeure:
…fire, chemical or radioactive contamination or ionising radiation, earthquakes, lightning, cyclones, hurricanes, floods, droughts or such other extreme weather or environmental conditions, unanticipated geological or ground conditions, epidemic, famine, plague or other natural calamities and acts of God…
What if you have a force majeure clause but the contract does not list “epidemic” or “pandemic” as a force majeure event?
Government Action in Response to the Pandemic
In some cases, even if the pandemic itself is not listed as a force majeure event in your contract, the government response to the pandemic might be expressly listed:
…any legal prohibition on the [party’s] ability to conduct the [party’s] Business, including passing of a statute, decree, regulation or order by a Competent Authority prohibiting the [party] from conducting the [party’s] Business, other than as a result of the [party’s] failure to comply with the law or any order, Consent, rule, regulation or other legislative or judicial instrument passed by a Competent Authority…
Although the fact that there is a pandemic may not, of itself, prevent you from compliance with your contractual obligations, the government response may. If there is a government-ordered shutdown of all non-essential businesses, for example, it could make compliance with contractual obligations impossible, at least until the emergency has passed and businesses are allowed to reopen…
Is a COVID-19 Outbreak an “Act of God?”
Whether a pandemic is considered an “act of God” for purposes of a force majeure clause is not a settled question…
If your force majeure clause does not specifically include pandemics, epidemics, or disease outbreaks in its definition of force majeure, the courts may conclude that the pandemic is not an “act of God” under the terms of your contract.
Also, courts may distinguish between 1) the pandemic or epidemic, and 2) the government response to the pandemic or epidemic.
If the pandemic is considered an act of God, the government’s response may not be. In most cases, it’s not the pandemic itself that is hurting your business – rather, it is the government shutdown of non-essential businesses or “shelter in place” orders that are preventing compliance with your contract.
If your force majeure clause does not include pandemics or government shutdowns in its definition of force majeure, an attempt to cancel or delay contractual provisions based on an “act of God” provision may be more difficult.
What is a “Hell or High Water” Clause?
Whereas many commercial contracts contain force majeure clauses, others may go the opposite direction.
Some contracts contain what is often referred to as a “hell or high water clause,” meaning the parties have agreed that payments or delivery of goods or services must continue regardless of the circumstances.
What can you do if your contract does not contain a force majeure clause, the force majeure clause does not include pandemics, or, even worse, your contract contains a “hell or high water” clause?
Can I Renegotiate My Contract?
In most cases, your best option is to renegotiate your contract based on the circumstances. Contact your attorney, have them review your contract and all relevant documents, and get professional advice on how you should proceed.
If your contract contains a force majeure clause that covers pandemics or the government response to a pandemic, odds are you are still obligated to mitigate the damage and then continue your contractual obligations as soon as possible.
You will need to communicate with the other party or parties to the contract and renegotiate deadlines for payment or delivery of goods or services or other contract terms based on the current situation and when it is expected to change.
Even if your contract does not contain a force majeure clause, you may be able to renegotiate the terms in light of the current situation – most people or companies will prefer to get paid and to get the benefit of their agreement rather than file a lawsuit for breach of contract with an uncertain outcome…
If you do reach an agreement with new deadlines, it should include a provision that allows further delay or renegotiations based on changing circumstances. For example, if all parties agree to a 30-day extension, but 30 days later your business is still shuttered due to a government decree, you must be able to extend the deadline.
COVID-19 and Force Majeure Provisions
If you need help renegotiating a commercial or real estate contract or filing suit for breach of contract due to the COVID-19 outbreak and economic fallout, Daniel A. Selwa may be able to help.
Call now at (843) 492-5449 or send an email for a free consultation to discuss your options.