You may have heard the term “force majeure” being discussed a lot with regard to parties fulfilling their contractual obligations in light of Coronavirus. Businesses and individuals, alike, are wondering whether force majeure contract clauses will actually hold-up in the face of the Coronavirus pandemic.
Many businesses rely on their force majeure clauses regarding “acts of God,” when they have to cancel a contractual obligation due to something out of their control; however, it is unclear whether Coronavirus falls in this category. Most “acts of God” are unforeseeable events caused by nature. Some force majeure clauses contain a catch-all provision, such as “any other event beyond the reasonable control of a party.” This would have a better chance of a court finding that the terms of the clause includes Coronavirus, versus a phrase like, “any other like event,” which is more limiting.
Clearly, a force majeure clause that specifically discusses “epidemics” or “pandemics” would be the most helpful in parties attempting to be relieved from a contractual obligation as a result of Coronavirus but, unfortunately, most force majeure clauses do not contain this reference. In the future, they should and probably will.
Another consideration regarding force majeure clauses is the language used when determining if a contractual obligation can be fulfilled. Different force majeure clauses use different terms as the standard for the clause to apply, such as “impossible,” “impracticable,” or “illegal.” For instances, if a clause only states that a contract could be cancelled if fulfilling it would be “illegal,” then even though an event was “impracticable” does not necessarily make it illegal, and the contract would not be able to be cancelled under the force majeure clause.
AsLastly, reasonable notice, typically required, is going to be a challenge in enforcing force majeure clauses. Due to the nature of Coronavirus, it is unclear as to when the triggering event occurred. For example, is it the first instance of Coronavirus in the United States, the date the World Health Organization (“WHO”) called Coronavirus a “pandemic,” the first day travel restrictions were imposed, or the first day there was a pause or stay-at-home order? (This is not an exhaustive list.)
Going forward, most businesses will likely include more specific force majeure clauses to account for pandemics like Coronavirus and provide more guidance on foreseeability required for a triggering event, what is meant by “impossible,” “impracticable,” and “illegal,” and the date used for fulfilling the proper notice requirements.