Today’s world is looking slightly different than it used to. Nowadays, it is “normal” to see people wearing masks, face coverings, and gloves while doing their grocery shopping, and in some places, it is a requirement. It is “normal” for an outbreak of hysteria to form over the last package of toilet paper or cleaning wipes. It is “normal” to whip up your own homemade bottle of hand sanitizer because you cannot find it anywhere else. People are referring to these life changes brought on by coronavirus as the “new normal”. In fact, people are already questioning if things will ever return to how they once were. While life should eventually return to how it was before the coronavirus was introduced, another underestimated change as a result of this global pandemic are how force majeure clauses within contracts may be drafted and interpreted.
What is a force majeure clause?
The term force majeure comes from the French meaning “superior force”. Essentially, a force majeure clause within a contract identifies unforeseen, supervening events or situations that may excuse a parties’ delay in performance. For example, a party to a contract may be obligated to complete a construction project by an agreed upon deadline. However, if a hurricane were to suddenly hit and destroy part of the newly built structure, causing significant delays in completion, the constructor may not be found in breach of the contract if the contract identifies this type of natural disaster as a force majeure. In addition to hurricanes, other more specified events, typically listed within a force majeure clause can include: war, riots, fire, national emergency, labor strike, governmental acts, acts of God, and pandemics. A force majeure clause within a contract may appear similar to the one below:
“Notwithstanding anything to the contrary contained herein, neither party shall be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, labor disputes, delays in transportation, supply shortages, war, fire, invasion, lockout, equipment failure, severe weather conditions, or acts of terrorism.”
Would the effects related to COVID-19 be covered by a force majeure clause?
The answer to this question may not be that simple. In fact, since the onset of coronavirus, many people have looked to their contract to try and determine if the issues they are experiencing would be appropriately protected by their force majeure provision. Even after conducting a methodical review of the language utilized in the contract, this is not always clear. The delays or issues in performance stemming from coronavirus might be excusable if the terms “governmental act”, “epidemic”, or “pandemic” are notably defined as examples of force majeure. If not, and a dispute were to arise, it may need to be resolved through the use of arbitration or litigation. Litigation is always the last option anyone wants to consider when it comes to resolving a disagreement, but if it MUST be done, it is of the utmost importance to find an experienced attorney, especially within the parties’ particular industry. As the outcome of force majeure disputes are decided on a case-by-case basis and dependent on numerous factors, such as the terms of the contract, applicable law, and other facts, it is crucial to rely on someone who has previously handled contract disputes.
Things to consider before signing a contract:
Is the force majeure clause within the contract sufficient to cover issues that may be caused by the effects from COVID-19?
Prior to signing any legally binding document, serious consideration should be made as to what may go wrong after the document is executed. While it can be extremely difficult to prepare for the unexpected, there are typically basic scenarios to keep in mind in order to be better protected. Think of the force majeure clause like insurance. What events could happen that may negatively impact the ability to abide by the terms of the contract? These should be included within the force majeure clause to potentially avoid liability for not being able to meet the requirements assigned in the rest of the contract because of that particular event.
More specifically, determine if the ongoing effects from coronavirus may contribute to failures in performance, delays, or any additional defaults. If labor or material shortages are caused by the effects of coronavirus (i.e. people getting sick, mandatory quarantining, or imposed travel restrictions) and the contract specifically lists “labor or material shortages” in the force majeure provision, those particulars should be covered. If the force majeure portion of the contract does not include particular language related to the effects from coronavirus, it may be up for further interpretation.
If a dispute were to arise and the contract requires arbitration, mediation or possibly litigation, how will these be conducted?
As social distancing and other restrictive mandates have been issued, changes had to be made from the standard day to day business operations seen before, especially with how legal proceedings are conducted. In the past, parties were able to negotiate and argue their point of view in person and within relative proximity to one another. Nowadays, mediations, arbitrations, and hearings are held via video conference or telephonically. It may not seem like a substantial issue, but what challenges could occur within the use of these formats, as opposed to performing the traditional, in-person confrontations? As contracts typically contain a clause related to navigating potential disputes, be sure to take into consideration how the contract may need to be revised in order to prepare for a socially distant friendly format.
Future impact of coronavirus:
There are several economic impacts and concerns related to coronavirus, which will likely continue long after the virus is gone. It is impossible to know exactly how much will be impacted as it is still fairly new, but it is something that should also be taken into consideration before signing a contract or making any business-related decisions. In the event of a contract dispute arising from effects caused by coronavirus, pay close attention to any news related to court decisions and how they may be interpreting this ultimate force majeure.
Tiffani Sprague, a Paralegal to construction industry attorneys at Zinzow Law, LLC. For more information, or to inquire about a free seminar on this or other legal topics, email firstname.lastname@example.org, or visit www.zinzowlaw.com.