The COVID-19 pandemic has impacted the ability of businesses to maintain operations and comply with existing contractual obligations. As a result, many businesses are now seeking to determine whether they are obligated to perform under their contracts, or whether they can excuse or temporarily delay performance.
One option to excuse or delay is to invoke a force majeure clause. A force majeure clause is a contractual provision that excuses one or both parties’ obligations when circumstances arise which are beyond the control of the parties (essentially making performance impractical or impossible). Typical force majeure provisions include the following types of events:
- Acts of god
- Severe weather (floods, fires, earthquakes, and hurricanes)
- Explosions
- Epidemics
- War and acts of terrorism
- Acts of government authorities
- Labor disputes and strikes
Whether a force majeure clause can be invoked is a fact intensive examination and depends on the specific language of the contract. Generally, courts interpret force majeure clauses narrowly not giving words expansive meaning. In Florida, a party seeking to invoke a force majeure clause must show that the force majeure event was unforeseeable, and that the force majeure event occurred outside the party’s control. In other words, the claiming party must show that the event could not have been prevented (and no fault or negligence occurred on their part). Additionally, claiming parties need to review the language of the contract to determine whether notice is required. If so, if a claiming party fails to provide notice pursuant to the contract, it could preclude their ability to invoke the force majeure clause. Other factors may affect a party’s ability to invoke such as the contract was entered after the outbreak of the coronavirus or whether the parties are required to attempt performance before invocation. Again, each situation must be assessed on a case by cases basis.
In the event a contract does not contain a force majeure clause, other options may be available. For example, many government entities have instituted complete shutdowns or lockdowns making performance impossible for many. In these situations, the facts support potential defenses of impossibility and impracticability or frustration of purpose.
As the pandemic continues, businesses should carry out proactive steps to ensure continuity of operations necessary to meet its contractual obligations and importantly, evaluate whether their counterparties are doing the same. If businesses expect that the pandemic may result in the inability to satisfy such obligations, they should assess the viability of either force majeure or other common law defenses of nonperformance.
If you have any questions regarding a contractual issue or dispute, please do not hesitate to contact attorney Matthew M. Fischer (matt@fischerlawpa.com). Matthew specializes in business law related issues and is a former Assistant General Counsel at the FBI and Senior Attorney Advisor at the U.S. Department of Health and Human Services.