The COVID-19 pandemic has forced countries all over the world to shut down their non-essential services and issue shelter-in-place orders to contain the rapid spread of the virus. These drastic steps are starting to severely impact regular operation of businesses and their ability to fully perform their contractual obligations.
Possible relief for non-performance of a contract may be available in the affected contract itself in the form of a force majeure clause.
What is a force majeure clause?
Force majeure, literally translated to mean “superior force,” is a common contractual provision that excuses non-performance of one or more parties to the contract, when such non-performance is caused due to extraordinary events or circumstances beyond the control of such parties.
It is important to note that:
- Not all contracts include a force majeure clause. Therefore, businesses would need to review their contracts as to whether this clause forms a part of their contracts.
- Not all force majeure clauses are created equal. Certain force majeure clauses excuse non-performance only for the duration of the unforeseeable event and such non-performance is not considered to be a breach of the contract. While certain other force majeure clauses excuse non-performance only for a limited period, beyond which the right of termination may be available to either or both parties.
When can you invoke the force majeure clause?
While force majeure clauses typically set out a list of non-exhaustive qualifying events, which may include natural disasters, government orders, actions by a government authority, national or regional emergency, act of God etc. (force majeure events), these clauses may also include broad “catch-all” language for events beyond a party’s control. The clause is less likely to include an epidemic or pandemic as a qualifying event.
When a party is unable to perform its obligations due to a qualifying event, the force majeure clause may be invoked. It is important to note that the businesses trying to invoke the force majeure clause will have to prove that the qualifying event has made it impossible to perform their contractual obligations. Mere financial burden caused by a qualifying event would not be considered a sufficient reason to excuse non-performance under the force majeure clause.
Would COVID-19 and the governmental measures to combat its spread (“COVID-19 Events”) qualify as a force majeure event?
As many of the states across United States and many countries worldwide continue to be in a state of lock-down, COVID-19 Events will likely qualify as a force majeure event under various categories including acts of God, government orders, national or regional emergency. However, even if COVID-19 Events do qualify as a force majeure event, business claiming under the force majeure clause will have to prove that one or more COVID-19 Events have made it impossible to perform their obligations under the contract.