COVID and contracts: When is force majeure an excuse for nonperformance?
Historically, contractual clauses known as “force majeure” have been used to protect parties from liability in case an unforeseen event such as war, terrorism or natural disaster prevents performance. The premise is that a party should be excused from fulfilling their obligations when an unforeseen cause or force outside their control has gotten in the way.
But what about a pandemic? In this post, we’ll take a look at the hotly litigated question of how force majeure may apply to the COVID-19 pandemic.
Does the contract mention pandemics?
The place to start in analyzing possible force majeure arguments is the contractual language itself, along with the facts of the specific case. The pandemic and its aftermath has not changed the basic structure of contract law, under which obligations are generally meant to be kept.
This premise applies not only to force majeure, but also to related arguments (particularly impossibility of performance or frustration of purpose) that are outside the contract’s language. The contractual language governs, and courts are generally reluctant to relieve a party from a contract.
That is why a party may negotiate for the inclusion of a force majeure clause to include natural disasters such as floods or human-caused catastrophes such as terrorist attacks. The inclusion of this type of clause carves out a narrow exception to the general rule of enforcing contracts, summarized by the Latin expression “pacta sunt servanda.”
The first question, then, is whether the contract in a particular case has a force majeure clause and how it is worded. If there is a force majeure clause but the term “pandemic” is not specifically included, courts may narrowly construe the contract to not include COVID-19 under the reach of force majeure – even if the clause referred to damages caused by fire, flood or “other casualty.”
It may be a different situation if the contract included the word “pandemic” in its force majeure clause. In that circumstance, much would depend on how the clause was actually worded and how it might (or might not) apply in light of the surrounding facts.
Other possible defenses
Even if there is a force majeure clause, it does not really apply if a party is able to complete its obligation despite additional difficulty and expense. That is why other contractual defenses such as impracticability of performance or frustration of purpose can come into play in pandemic cases.
Nearly three years into the pandemic, however, courts seem likely to become increasingly skeptical of force majeure arguments where businesses were impacted by COVID-19. Not matter how unforeseeable (or not) the “novel” coronavirus may have been in early 2020, the world is all too familiar with it now. Attempts to use force majeure arguments in contract litigation are therefore likely be very tightly construed going forward.
Yet these are complicated, fact-driven cases that call for highly skilled attorneys to handle any litigation you may face.
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