FORCE MAJEURE AFTER COVID
When the Covid crisis arrived, many people who had signed contracts found it difficult or impossible to perform their obligations. Many sought relief from the force majeure clause in their contracts. In most cases, that proved to be disappointing. With the benefit of hindsight, parties now have the opportunity to revise contracts to provide the protection they need.
Force majeure is a French phrase which means “superior strength.” Force majeure can excuse performance under a contract when there is an event or condition which was not anticipated and prevents or inhibits performance or renders it futile. A closely related concept is frustration of purpose. The concept is often taught through the Coronation Cases. King Edward VII of England was scheduled to have his coronation on June 26, 1902. Thousands of people rented rooms and boats to watch the festivities. Two days before the event, an attack of appendicitis forced the rescheduling of the coronation. Many people who had rented rooms and boats demanded refunds. Many of those demands were rejected, and many lawsuits ensued. The results depended on whether the contract stated a purpose. Where leases specified that the purpose was to watch the coronation, those people were excused from compliance. Other leases simply provided for renting a space for two days, without a reason or purpose. People with these leases were not excused. A lease for a boat said that its purposes included watching the coronation and taking a cruise around the fleet. Although the coronation was canceled, the fleet was still in the water and could be cruised around. That lease was enforced because some of its purpose remained.
Modern force majeure clauses typically recite events that will excuse performance, such as fire, floods, war, riots, etc. “Acts of terrorism” is a relatively new addition resulting from the 9/11 attacks. Courts had held that the attacks were not acts of war or riot, so “acts of terrorism” was added to the standard clauses. Businesses are now going through the same exercise, this time in response to the pandemic and executive orders restricting public gatherings.
In addition to excusing performance, some force majeure provisions specify events or conditions that will not excuse performance. For example, a contract may say that performance is required even if a company’s labor force goes out on strike. Or that the failure of the electrical utility will not be an excuse for performance; the performing party should have a generator backup.
When considering their response to the Covid crisis, businesses should consider whether one party, or both parties, or no party should be excused from performance in the event of a pandemic or government orders. They should also consider events or conditions that will not excuse performance. They should also address what will become of any down payment or deposit, and goods or services that are only partially completed. Each business will have its own particular considerations. An experienced business attorney can help draft appropriate force majeure provisions.
This is not intended to be legal advice. You should contact an attorney for advice regarding your specific situation.
Gary M. Schuster is partner at the firm and practices business, non-profit, and arts and entertainment law.
He can be reached at 866-303-9595 toll free or 845-764-9656 and by email.