In my nearly decade of practice as a lawyer, I’ve had to dust off the ole’ force majeure clause in a contract a total of two times. Once because of an earthquake, and another because of a tsunami. They were isolated incidences with one customer, a few suppliers and a landlord and while difficult circumstances, was certainly not widespread.
Had I been practicing law already when 9/11 happened, perhaps I’d have more familiarity with a widespread force majeure event, but that wasn’t the case. I was only a junior in high school.
For those of you that may not be sure, force majeure is the latin contract word that essentially means something beyond the control of the parties. In laymen’s terms force majeure is an “Act of God,” although the definition can be more broad or more narrow than that, depending on its construction.
Depending on the jurisdiction, a party may avail itself of force majeure even absent specific language (namely civil law jurisdictions like EU countries and China) in the contract.
The US and UK, for example, are common law jurisdictions. The common law has a basic doctrine for contracts of absolute liability. That basically means that a party must perform “no matter what.” Even if performance becomes impossible, a party is not relieved of its obligations (assuming no contract terms).
Recognizing this difficulty, courts responded by creating another doctrine- that of frustration. In order for a party to avail itself of the doctrine of frustration, neither party can be at fault and circumstances must be significantly different from those contemplated at the time of contract signing. If a contract is found to have been “frustrated,” then the contract automatically terminates at such point in time.
The doctrine of frustration has many exclusions, including when the parties could have anticipated a circumstance, frustration that is brought about by one party or made worse by one party, certain types of delays, and more.
Because of this, a force majeure clause is often used. A force majeure clause essentially relieves the performance of a party due to an intervening event.
There are a few guiding rules in interpreting force majeure (or any other, really) contract clauses.
First, if an ambiguity arises, the contract is usually interpreted in favor of the non-drafting party. For example, in a contract between Party A and Party B that Party A drafted, then the ambiguity would be resolved in favor of Party B.
Second, general phrases following specific phrases are limited to similar specific phrases and cannot be used as a catch-all. For example, if you listed A, B, C, D and anything else reasonably out of the control of the parties, “anything else” can’t function as a catch-all, but rather would have to be similar to A, B, C, and D. It could be E, F, G or even Z, but not 7. In a force majeure scenario, if the events were tornado, hurricane, earthquake, and anything else… anything else could mean a tsunami or even a flood, but not a labor strike or a non-natural cause like a fire or explosion.
Third, phases like “including, but not limited to…” seek to subvert the second rule, and are generally successful in doing so.
Covid-19 and Force Majeure
The global pandemic known as Covid-19 has changed the world as we know it. Schools are closed, most people are working from home, we’re not able to interact in person with our friends and loved ones, and, as relevant to this post, companies are finding themselves completely at a loss for predictabiltiy on delivering to their contractual requirements with their customers and suppliers.
The pandemic has caused massive global interruption to supply chains. No company has escaped the effects of covid-19, whether it be due to mandatory office or factory closures, stay at home or shelter in place orders, less movement of goods, cancellation of events, and the like. The fast moving nature and fluidity of the situation is causing companies to make education guesses on the length, nature, and severity of the situation as part of their business continuity planning.
Does Covid-19 satisfy force majeure?
As any lawyer would say, it depends.
Force majeure is intended to excuse a party’s non-performance when extraordinary circumstances or events prevent performance as contractually mandated. Generally speaking, there’s a three part analysis in evaluating a situation under a force majeure clause: 1) Does the event qualify as such under the contract? 2) Was the nonperformance foreseeable and could it be/was it mitigated by the excused party? 3) Was performance truly not possible due to the claimed event?
This will be a case by case analysis and can’t be blanket-applied to the covid-19 crisis. As you pull out your contracts to review the rights and responsibilities of your company, keep in mind the answer may not be obvious on the surface but rather require deeper analysis, which could be hard in a situation as fluid as this pandemic has been.
I hope this brief review has been helpful; I know lawyers everywhere have spent dozens of hours pouring over these clauses and their contracts more generally as we try to best advise our clients on what is truly a once-in-a-lifetime situation.
So, at the end of the day, depending on the specific wording of your contract, the nature of your performance obligations, and the extent of the event’s foreseeability and your mitigation of it- the analysis of which can make or break a party’s ability to properly utilize the defense- is what will drive the applicability of the defense to your company.
Happy lawyering, friends.