From South by Southwest (SXSW) in Austin to the Electronic Entertainment Expo (E3) in
Los Angeles to the International Auto Show in New York, numerous industry meetings and
conferences are being canceled or postponed due to the novel coronavirus pandemic. Similarly,
many supply chains and business arrangements are being disrupted. This is leading many
businesses to ask whether their contractual force majeure clauses apply. Below are five key
questions to ask when analyzing this issue.
What does your force
majeure clause actually say?
There is no single “standard” force majeure clause. Just because
your business may include force majeure clauses in its contracts
does not mean they are necessarily all uniform. While a force
majeure clause may be one found in the “standard” terms and
conditions of a contract, they remain subject to negotiation like
any other term. The iterations of specific events of force majeure
can vary widely, particularly between industries. And businesses
allowing non-attorneys to negotiate agreements, particularly
matters relating to special event space and hotel agreements,
may be surprised at the terms of the clause they are facing.
Can I rely on coronavirus being
an unforeseeable “Act of God”?
Force majeure clauses often list specific items that will qualify as
an event of force majeure, such as strikes, wars and riots. Many such clauses will include an “Act of God” in the list, which would
seem to describe a global pandemic. But case law on what
does or does not qualify as Act of God varies across the country.
Some jurisdictions have opinions suggesting that Acts of God may
be limited to matters solely caused by forces of nature. See, e.g.,
McWilliams v. Masterson, 112 S.W.3d 314, 320 (Tex. App. – Amarillo
2003, pet. denied). Most jurisdictions require the Act of God to
be unforeseeable. See, e.g, United States v. Winstar Corp., 518 US
839, 905–907 (1996). Foreseeability is often disputed, with the
decision dependent on the level of abstraction ultimately adopted
by the decision maker (e.g., general viral outbreak vs. coronavirus
pandemic). Suffice it to say, whether a force majeure clause that
specifically references Acts of God will apply to a coronavirus
cancellation or interruption is highly fact and jurisdiction specific.
Having a force majeure clause that specifically references
epidemics or pandemics will be the most helpful to a party
wanting to obtain relief from a contractual obligation as a
result of the coronavirus pandemic. However, few contracts
outside of the healthcare industry typically have such
specific references.
Was performance made impossible,
impracticable or illegal?
Different force majeure clauses use different standards to tie the
force majeure event to contractual performance. The three most
common are impossibility, impracticability and illegality. Which
of these standards is in a contract will drive the analysis of its
applicability. For example, a court could conclude that holding
a particular event was impracticable but not necessarily illegal.
There are also many factual permutations that could drive this
analysis. For example, a US event focused on the Chinese market
may very well have become impossible after the implementation
of the Chinese travel ban. See Presidential Proclamation 9984.
Does your clause have
a catchall provision?
Many force majeure clauses not only list a number of specified
events but have catchall clauses such as “any other event beyond
the reasonable control of a party.” However, some clauses use
phrases such as “any other like events.” The latter phrasing is
more narrowly interpreted by many courts See, e.g., Kel Kim Corp.
v. Central Markets, Inc., 519 N.E.2d 295, 296 (N.Y. 1987). Having
any sort of catchall clause will be of assistance in claiming an
event of force majeure connected to the coronavirus pandemic.
However, case law interpreting these provisions also vary among
jurisdictions, with some courts limiting their scope by adding
additional requirements, such as lack of foreseeability. See, e.g,
TEC Olmos, LLC v. ConocoPhillips Co., 2018 WL 2437449, at *6
(Tex. App. – Houston May 31, 2018); Rochester Gas and Elec. Corp.
v. Delta Star, Inc., 2009 WL 368508, at *8–10 (W.D.N.Y. 2009).
Is notice required and
did you properly give it?
Force majeure clauses vary in their notice requirements. Some
require notice within a certain timeframe of the occurrence of
an event of force majeure, whereas others only require prompt
or “reasonably” prompt notice. In the context of the coronavirus
pandemic, one important consideration for any notice provision
will be when “the event” of force majeure occurred. Was it when
the World Health Organization (WHO) declared the coronavirus
outbreak a pandemic? Was it when a travel ban was entered?
Was it when a local city regulation was enacted? Determining
what the force majeure event is and when it occurred will be key
in determining when notice was required.
Final thoughts
While force majeure clauses are generally construed narrowly,
the coronavirus pandemic is unprecedented in our nation’s recent
history. How public policy considerations will impact the judicial
analysis of force majeure clauses going forward remains to be
seen. The law is developed with the benefit of 20/20 hindsight,
and right now nobody knows how the pandemic will end.
