Force Majeure and COVID-19
With governments around the world imposing travel bans and quarantines in an attempt to slow the spread of COVID-19 pandemic the ability of parties to perform in accordance with the terms of a contract, and the liability that may result from the inability to perform under the terms of a contract is a very real concern.
To determine whether the COVID-19 pandemic and resulting governmental shutdowns may provide a justifiable reason to suspend or terminate a contract, one must look to the specific language of a contract’s force majeure provision. Because the concept of force majeure is based in civil law, common law countries like the United States tend to utilize force majeure as a contact provision, and, therefore, it is common that the circumstances constituting force majeure, and the consequences of any event of force majeure are often defined in the contract. Most contracts include a specific and “closed” list of events which are said to constitute force majeure.
On March 11, 2020 the World Health Organization (WHO) declared COVID-19 a pandemic and thus would likely trigger the force majeure clause of a contract that contains specific reference to a global health outbreak. It may also be possible that such circumstances will trigger the force majeure clause if the clause applies to any act of any government or regulatory body where such bodies impose restrictions in response to the COVID-19 outbreak. For example, if a governmental body quarantines a specific area preventing travel into that work area, the clause may be triggered as the event beyond a contracting party’s control.
It is important to note that performance of duties under a contract are not necessarily excused simply because an event occurs that invokes the force majeure clause of a contract. To invoke force majeure and excuse performance under a contract, the nonperforming party generally has a duty to show that it took affirmative steps to perform the contract regardless of the occurrence of the event which triggered the force majeure clause. For example, even if the force majeure cause defines a storm as a force majeure event because a storm is unexpected, and out of the party’s control, the nonperforming party must show that it exercised due diligence to overcome the effects of the specific force majeure events, that it tried to limit the problem but was unable, and that it did everything in its control to prevent or minimize the happening of the force majeure event.
Finally, even if a party is able to establish that an event occurred triggering the force majeure provision, and that the party exercised due diligence to overcome the effects of the event, it is important that the party seeking to be excused from performance under the contract adhere to the notice provisions contained in the contract. Failure to comply with the notice provisions of a contract may interfere with one’s ability to rely on force majeure.
For information on how COVID-19 and force majeure may affect a contract you are currently a party to, and for best practices on contact drafting and enforcement contact the attorneys at Rock Fusco & Connelly, LLC.