- Identify whether your contract contains a force majeure clause. Not all contracts have them. Relatedly, if there is such a clause, review your contract to determine the state whose law governs the interpretation and application of the contract.
- Does your force majeure clause cover COVID-19? Again, your first instinct is likely, “Of course!” But be aware: many clauses do not contemplate excusing nonperformance for diseases like COVID-19. Look for words or phrases like “pandemic,” “epidemic,” “public health emergency,” “outbreak of communicable disease,” or the like. Alternatively, some force majeure clauses apply in the event of government orders that make performance impossible. If none of the above work, look for catch-all phrases such as “acts of God” or “events beyond the control of a party.”
- Is COVID-19 the reason for nonperformance? The party seeking to excuse their nonperformance must tie the occurrence of COVID-19 and related restrictions to the reason that the party cannot perform its obligations. Be wary of contract counterparties attempting to delay or decline performance by taking advantage of COVID-19 without showing how it negatively affects their obligations. In some, but not all states, the fact that performance may be more difficult or expensive is not a valid excuse for failing to perform.
- How does the force majeure clause allocate risk? This item involves two distinct questions. First, does the contract allow one or both parties to take advantage of the force majeure clause? Second, what is the effect of the force majeure clause on the party seeking to take advantage of it? These clauses can merely alter the time for performance, or they can excuse it completely. In some circumstances, they can allow the party to terminate the agreement. The effect of the clause may counsel against invocation of force majeure. Which leads us to the final item on the checklist . . .
- What do you do? If you want to claim a force majeure, how will this affect your business? Termination of a contract could permanently damage a business relationship. We recommend beginning an honest dialogue with your contract counterparty about the necessity of delay or termination. Take steps to begin mitigating the impact of the force majeure event, such as seeking alternative locations to perform the contract, securing new suppliers, working remotely, and anything else that may minimize both parties’ losses. If your counterparty seeks to invoke force majeure, we recommend seeking substantiation and documentation of why they think the clause applies and how they believe it affects their ability to perform under the contract.
Insight
Practical Considerations Surrounding the Applicability of Force Majeure Clauses in the Midst of COVID-19
Practical Considerations Surrounding the Applicability of Force Majeure Clauses in the Midst of COVID-19
We are living in a time of uncertainty. Every day, you learn new ways in which your business is and will continue to be affected by COVID-19. As more and more restrictions, shutdowns, and governmental orders go into effect, one thing does become certain: your business does not operate in a vacuum. The new reality of COVID-19 may mean that you are unable to meet your contractual obligations. Conversely, it may mean that your contract counterparty cannot satisfy their obligations to you. It’s no one’s fault, but one party will take the blame - or will they? Force majeure clauses are commonly found in commercial contracts to allocate risk in situations where one or more parties’ contractual obligations are made impossible (or nearly impossible) by unforeseen events outside of the parties’ control. These are often referred to as “acts of God” clauses, although these phrases are not always synonymous. While it may seem obvious that COVID-19 would constitute a force majeure, this is not necessarily the case. Below is a checklist to help you make informed decisions with respect to enforcing or defending against the enforcement of a force majeure clause to excuse nonperformance under the contract.
Trending Articles
Presenting The Best Lawyers in Australia™ 2025
by Best Lawyers
Best Lawyers is proud to present The Best Lawyers in Australia for 2025, marking the 17th consecutive year of Best Lawyers awards in Australia.
The 2024 Best Lawyers in Spain™
by Best Lawyers
Best Lawyers is honored to announce the 16th edition of The Best Lawyers in Spain™ and the third edition of Best Lawyers: Ones to Watch in Spain™ for 2024.
Best Lawyers Expands 2024 Brazilian Awards
by Best Lawyers
Best Lawyers is honored to announce the 14th edition of The Best Lawyers in Brazil™ and the first edition of Best Lawyers: Ones to Watch in Brazil™.
Announcing The Best Lawyers in South Africa™ 2024
by Best Lawyers
Best Lawyers is excited to announce the landmark 15th edition of The Best Lawyers in South Africa™ for 2024, including the exclusive "Law Firm of the Year" awards.
The Best Lawyers in Mexico Celebrates a Milestone Year
by Best Lawyers
Best Lawyers is excited to announce the 15th edition of The Best Lawyers in Mexico™ and the second edition of Best Lawyers: Ones to Watch in Mexico™ for 2024.
How Palworld Is Testing the Limits of Nintendo’s Legal Power
by Gregory Sirico
Many are calling the new game Palworld “Pokémon GO with guns,” noting the games striking similarities. Experts speculate how Nintendo could take legal action.
How To Find A Pro Bono Lawyer
by Best Lawyers
Best Lawyers dives into the vital role pro bono lawyers play in ensuring access to justice for all and the transformative impact they have on communities.
The Best Lawyers in Portugal™ 2024
by Best Lawyers
The 2024 awards for Portugal include the 14th edition of The Best Lawyers in Portugal™ and 2nd edition of Best Lawyers: Ones to Watch in Portugal™.
Announcing The Best Lawyers in New Zealand™ 2025 Awards
by Best Lawyers
Best Lawyers is announcing the 16th edition of The Best Lawyers in New Zealand for 2025, including individual Best Lawyers and "Lawyer of the Year" awards.
Presenting the 2024 Best Lawyers Family Law Legal Guide
by Best Lawyers
The 2024 Best Lawyers Family Law Legal Guide is now live and includes recognitions for all Best Lawyers family law awards. Read below and explore the legal guide.
Announcing The Best Lawyers in Japan™ 2025
by Best Lawyers
For a milestone 15th edition, Best Lawyers is proud to announce The Best Lawyers in Japan.
The Best Lawyers in Singapore™ 2025 Edition
by Best Lawyers
For 2025, Best Lawyers presents the most esteemed awards for lawyers and law firms in Singapore.
Canada Makes First Foray Into AI Regulation
by Sara Collin
As Artificial Intelligence continues to rise in use and popularity, many countries are working to ensure proper regulation. Canada has just made its first foray into AI regulation.
Commingling Assets
by Tamires M. Oliveira
Commingling alone does not automatically turn an otherwise immune asset into an asset subject to marital distribution as explained by one family law lawyer.
