Which Force Majeure Contract Provisions we should check due to the Coronavirus outbreak?

By The Law Office of Yoel Molina.
 
A boilerplate clause found in many (but not all) commercial contracts is known as "force majeure." It justifies or postpones performance under a contract because of an uncontrollable supervening circumstance. Many people are examining their contracts to see whether they have a force majeure provision and questioning whether it covers performance issues brought on by the coronavirus health crisis in light of the interruptions caused by the coronavirus (COVID-19) pandemic.
 
What is a Clause for Force Majeure?
War, hurricanes, and disease are examples of bad things that can occur. They may prevent you from keeping the commitments you made in past agreements with clients, customers, suppliers, or others. Many contracts have a force majeure clause to protect you from being held accountable or found in breach of the contract once a catastrophe occurs (sometimes known as an "act of God" clause).

A supervening event must make your performance unsafe, illegal, impractical from a business standpoint, or impossible in order to activate such a clause. For instance, if your factory or office is closed as a result of a shelter-in-place order from the government, you won't be able to complete a contract. You aren't exempt from performing, though, just because it's inconvenient or more expensive than you anticipated.

Read the force majeure provision of your contract thoroughly. Here are a few things to watch out for.

•           Is the provision applicable to the coronavirus outbreak?: A conventional force majeure clause does not exist. They differ greatly. They often list a series of circumstances that excuse or postpone performance. Instances of "acts of God," "acts of government," conflict, terrorist attacks, unrest or civil unrest, earthquakes, hurricanes, tornadoes, floods, starvation, and fire are typical instances. However, not often, diseases, epidemics, pandemics, or contagions are also considered. These provisions frequently include a catch-all language that states that any incident outside of the affected party's reasonable control also excludes performance.

The coronavirus pandemic is probably covered by the clause if it specifically specifies pandemics, epidemics, contagion, or illnesses as force majeure events. What if it doesn't include those items? A judge can decide that the epidemic qualifies as either an "act of God" or comes under the catch-all clause. An order to shut down the government could be considered an act of the government if it applies to your company. Unfortunately, there are times when it's not totally evident. Courts have historically given force majeure clauses a strict interpretation. Whether they will carry on doing so after the coronavirus pandemic is unknown at this time.

•           What commitments are exempted?: Determine which contractual duties are postponed or excused by the force majeure clause if the coronavirus pandemic is a covered event under it. Your performance might be dismissed without further action. This means that the contract is over and you won't get compensated (or have to pay the other party).

Alternately, performance might just be postponed, in which case you would still need to provide the goods. Some articles stipulate that the parties to the agreement must keep up with all payments despite a delay in performance. Other provisions allow deferring such payments.
 
Send the Other Party a Notice:
Be sure to notify your client, customer, landlord, or any other person or business if you intend to delay or discontinue performing under a contract as a result of the pandemic. You might forfeit your ability to rely on the clause if you fail to provide prompt notice. Many contracts have a clause that specifies how notice must be sent to the other party, such as by certified mail, postal mail, or email. Don't forget to follow your contract's instructions and retain copies of the notification.
 
Your Obligation to Reduce:
You must demonstrate that you took all necessary precautions to prevent or lessen the harm brought on by the force majeure occurrence in order to rely on a force majeure clause.
 
Create records:
Keep documentation, such as a government shutdown order, that proves fulfilling your contract obligations was impossible or impractical. Additionally, retain documentation proving that you (1) adhered to all government advice for handling the pandemic and (2) made reasonable efforts to lessen its effects.
 
What Happens If There Is No Force Majeure Provision in Your Contract?
A force majeure clause is not present in all commercial agreements. If there isn't one in your contract, a judge won't impose one on you if you're sued for breach of it. Instead, you'll need to rely on some other legal defenses to escape responsibility for postponing or canceling your performance. The idea of difficulty or impossible is one foundation.
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According to a rule of law, if one of the following things happens after a contract is formed:

• It is not the fault of any party,
• was not anticipated
•  renders it impossible to perform the contract in a practical or commercial sense.

In general, the doctrine of frustration makes it more difficult to escape contract liability than a well-drafted force majeure clause. However, the coronavirus pandemic might be covered by this legal principle depending on the situation. However, it is advisable to have legal counsel before relying on it.


If you have any questions about this article or similar matters, please contact our office, the Law Office of Yoel Molina, P.A., at fd@molawoffice.com or 305-548-5020, option 1