WHAT YOU NEED TO KNOW ABOUT FORCE MAJEURE DURING THE COVID-19 CRISIS
It is obvious to everyone that we are living in unprecedented times. The impact of the COVID-19 virus has reached virtually every aspect of the lives of Americans. And for businesses, current restrictions, recommended practices, and general uncertainty make for very difficult terrain to navigate. During this time, the ability to continue to perform contractual agreements as originally written and anticipated may be called into question. Businesses that need critical supplies are unable to get them, and likewise, businesses may not be able to fully perform contractual obligations to their customers. Hopefully, arrangements can be renegotiated in the midst of the current uncertainty to reach a solution that does the least amount of damage to all involved. But, where a business feels compelled to stand on its contractual rights, a close analysis of the enforceability of the contract is necessary.
The concept of force majeure, if included in the contract document, may provide guidance on how arrangements may be adjusted without breaching the contract. A force majeure clause generally outlines events under which a party’s strict performance with a contract may be modified or excused. These provisions frequently list specific things such as identified natural disasters, labor shortages, civil disruption, inability to obtain critical materials, and the like. They may also describe generically other types of occurrences, although not specifically named, that would give rise to some type of relief. In analyzing whether or not, and the extent to which, a contract is enforceable in the current situation, a review of contracts for a specific force majeure provision should be done.
If the provision is included in the agreement, the first step in the analysis of the provision is to determine whether or not the current events are covered by the language of the provision. This will depend on the exact language of the particular provision as applied against the circumstances a business is facing. For example, do the applicable lockdown orders constitute a true quarantine, address a civil disturbance, or is there some other interpretation that would fit the provision?
The second line of analysis then is to determine what relief is possible under the provision. Is the party claiming force majeure entitled to more time, a price adjustment, or to simply be released from any future performance under a contract?
A final issue to be noted in reviewing the force majeure provision is to determine whether or not there is a procedure outlined for invoking force majeure specified in the agreement. If there are time limits or specific notice requirements, these should be scrupulously observed.
If an agreement does not contain a force majeure provision, there still may be other avenues to excuse strict performance. That will be the topic of my next blog article. Stay tuned.