On March 13, 2020, the President of the United States declared a State of Emergency in response to the coronavirus (aka COVID-19). Nearly a week later, there have been more than 10,000 reported cases in the U.S. and more than 167,000 cases globally. In response to the rapid rise of the number of COVID-19 cases and deaths associated with this virus, the World Health Organization (WHO) declared a pandemic last week, indicating that the virus will likely impact countries across the globe.
States and local governments are now taking drastic measures to slow the spread of the virus, including San Francisco requiring citizens to shelter in place, Ohio closing all bars and restaurants and most states limiting the size of social gatherings. In addition, most companies are taking either proactive measures or are responding to governmental directives including shutting stores or requiring employees to work from home. These types of restrictive measures have made it difficult for some parties to perform their contractual obligations, and have these parties contemplating whether they can invoke the “force majeure” provisions in those contracts to excuse their inability to perform those obligations.
What is Force Majeure?
Force majeure is a fancy French phrase for what Black’s Law Dictionary defines as “an event or effect that can be neither anticipated nor controlled.” In common language, force majeure is usually related to the occurrence of an event that is beyond the control of a party and that prevents that party from performing a contractual obligation, such as a natural disaster, a major conflict (war), an act of God or an unforeseeable governmental action. Commonly, a party to a contract may use a force majeure clause to excuse its inability to perform an obligation under that contract where an event has occurred that:
- is beyond the control of that party, and
- that adversely affects that party’s ability to perform its obligation, if:
- that party’s nonperformance is not due to its own negligence or fault, and
- that party could not have been expected to avoid the problems created by that event by taking reasonable actions or precautions.
However, a force majeure clause does not typically excuse a contractual obligation to pay money.
Does the COVID-19 Pandemic Give Me the Right to Invoke a Force Majeure Clause?
It is possible that the various declarations of national emergencies, at both the state and federal level, may qualify as triggering events for a force majeure clause. However, each contractual arrangement is unique and it is therefore important to review the details of your contractual arrangement with counsel before attempting to invoke a force majeure provision. Here are some important considerations:
- Does your contract’s force majeure provision list specific events (which might not include a pandemic), or is it more open-ended (i.e. “including, but not limited to”)?
- How long does the force majeure event have to last before a party is excused from performance?
- Does the force majeure event excuse full performance or just a delay in performance?
- When does a party need to notify the other party of an inability to perform due to a force majeure event?
- Does a party have to try to mitigate the damages resulting from nonperformance?
- What is the appropriate remedy if a force majeure clause has been triggered (i.e., is it the termination of the contract)?
What Happens If I Trigger a Force Majeure Clause?
The decision whether to trigger a force majeure clause needs to be contemplated carefully. Triggering a force majeure clause prematurely or without a sufficient basis can have adverse effects on your business or open you up to claims by another party to the contract. In addition to reviewing the language of the force majeure clause, it is important to understand the scope of the disruption caused by the force majeure event, and then appropriately document this disruption and its effect on your business.
Some countries are already taking proactive steps to assist businesses that may need to trigger force majeure clauses. For instance, China recently announced that companies that are unable to fulfill their obligations as a result of government actions to contain the virus should be entitled to relief under a force majeure provision. If you believe your company may need to invoke a force majeure clause in a contract, it is advisable to first seek out legal advice to understand the full ramifications of doing so on your business.
As you navigate the complexities caused by COVID-19, the knowledgeable attorneys of KJK stand ready to support you. For more information about force majeure or assistance in determining whether you or any counterparties to an agreement have the right to invoke force majeure in order to avoid performance of a contractual obligation, please contact Demetrius Robinson at djr@kjk.com or 614.427.5749, Corporate Chair Steve Bersticker at scb@kjk.com or 216.736.7219 or Litigation Chair Brett Krantz at bk@kjk.com or 216.736.7238, or reach out to any of our other Corporate or Litigation professionals.