“Force majeure” is a well-established legal doctrine that is embedded in many business contracts. Under certain circumstances, a contracting party may rely on force majeure to delay or excuse performance obligations. It has become particularly relevant in the current climate of COVID-19 because it may help some businesses manage and perhaps avoid contract performance obligations.
What Does “Force Majeure” Mean?
Force majeure is a French term that means “greater or superior force”. Business contracts often specifically include what is called a “force majeure clause”. The clause sets out and may even identify specific types of “superior” intervening events that will suspend or completely excuse the parties’ performance obligations under the contract.
Generally, the clause springs into effect upon the occurrence of an event that can be neither anticipated nor controlled by either party. When such an event causes a contracting party’s performance to become impossible or impracticable, the contract’s force majeure clause will become operative.
How Does A Force Majeure Clause Work?
A force majeure clause may delay one or more contracting parties’ performance
obligations, and it frequently will completely excuse one or more parties’ obligations under the contract. How the force majeure clause works depends almost entirely upon the language in the contract itself, in light of the facts and events relevant to each situation.
Based on the contract language, the force majeure clause may provide only temporary relief or operate to delay (rather than excuse) performance. In some cases, the event at issue may be so extreme that it frustrates the purpose and intent of the contract that the force majeure clause allows one or both parties to terminate the contract altogether.
The force majeure clause will not stand alone. In litigation of a dispute, the court will construe it in conjunction with the rest of the contract’s language. For example, the contract may contain other provisions that govern a party’s ability to invoke the force majeure clause, such as notice provisions. Other contract language may also be relevant to how the clause works, such as liquidated damage provisions and other provisions related to performance, mitigation obligations, and remedies.
What Is Considered A Force Majeure Event?
To determine what constitutes a force majeure event, the parties will again need to review their contracts. Force majeure events are often (but not always) specifically identified in the contract in an enumerated list.
Instead of consisting solely of an enumerated list, some force majeure clauses will include a list of events with a “catch-all” provision tacked onto it. Others will consist solely of a generalized “catch-all” provision without listing any types of events. In still other cases, the contract language may only describe the criteria for what event constitutes a force majeure event, or it may go so far as to leave it open-ended by defining force majeure events as “any acts or events that are beyond the control of the parties”.
In more general terms, what usually constitutes a force majeure event that will be great enough to excuse the performance of one contracting party requires the satisfaction of all three of the following criteria:
- The event must be beyond the reasonable control of one or both parties.
- The event must affect one or both parties’ ability to perform its obligations under the contract—that is the event must have prevented, impeded or hindered the performance.
- The affected party must take all reasonable steps to seek to avoid
or mitigate the event or its consequences.
Is The COVID-19 Pandemic Recognized As A Force Majeure Event?
If the words “plague” or “epidemic” is included in the Force Majeure clause, COVID 19 is included. If those words or similar words are not included, then the court will decide on a case by case basis. The pandemic also has prompted unusual government action such as business closures which in many cases could also constitute a force majeure event. However, as COVID 19 Force Majeure litigation is relatively new, it is impossible to predict an outcome.
To minimize disputes with the other contracting parties, the party burdened by the pandemic must be prepared to show that its performance of the contract was hindered by COVID-19 or by the government action or customers’ reactions related to COVID-19, and that the burdened party has done all it reasonably could to mitigate or avoid the consequences.
Common Force Majeure Clause Examples
As indicated above, common force majeure examples are extreme and uncontrollable intervening events that render performance impossible. The types of events typically identified include acts of God (meaning weather events such as tornadoes, earthquakes, hurricanes, and arguably may include a pandemic), war, terrorism, acts of government, explosions, fire, plagues or epidemics.
Many force majeure clauses have “catch-all” language in addition to an enumerated list of qualifying events. This catch-all language usually describes a force majeure event as any event that is outside of the reasonable control of the parties.
What Happens If A Contract Does Not Include A Force Majeure Clause?
In the absence of a force majeure clause, a court may apply common law contract doctrines to determine whether a contracting party may be excused from their performance or be able to delay performance. The common law doctrine referred to as “frustration of contract” will apply when an event beyond the control of the parties intervenes and renders performance impossible or highly impractical.
The question may arise what happens when the contract includes a force majeure clause that covers an act of God, but the language does not expressly include a plague or epidemic, or government action, or a catch-all provision that covers other unimaginable events beyond the control of the parties. In such cases, a contracting party may argue that the COVID-19 pandemic constitutes “an act of God” successfully in some courts.
In sum, most courts will be inclined to delay or excuse performance of a contract whenever events outside of the control of a party make performance impossible or highly impracticable.
Speak With An Experienced Contract Attorney At KPPB LAW For More Information
If COVID-19 or related events have impaired your ability to perform under a contract, get help quickly from the contract law team at KPPB LAW. They can review your contract and negotiate with your contracting partners to resolve outstanding contract obligations. Contact KPPB LAW to discuss your case with our Atlanta contract law attorneys today.