Can Coronavirus be a Force Majeure Event?
On March 11, the World Health Organization officially declared the novel coronavirus outbreak to be a global pandemic. You will want to explore whether performance of the contract was excused by an event of force majeure. This is especially true if the pandemic threatens your company’s ability to perform under a contract. It should also be considered if your suppliers/contractors are claiming an inability to perform their contractual duties due to the coronavirus.
What is Force Majeure
Under “force majeure,” a party may be excused from performing a contract where an event beyond the control of the parties prevents the party from fulfilling its contractual duties. In contracts to be enforced under the law of the United States, there is no implied force majeure. Any such claim must be based on specific language in a contract. Many commercial contracts, including most supply agreements, contain a force majeure clause. However, the language used in the contract can vary significantly.
Some force majeure contracts state in broad, non-specific terms that a party’s performance may be excused if such performance was prevented by events out of the party’s reasonable control. However, most force majeure clauses specify certain events such as acts of God, earthquakes, floods, riots, terrorism, wars, etc. Indeed, some standard force majeure clauses will specify that a pandemic constitutes force majeure event. Furthermore, force majeure provisions typically have a catch-all clause. This excuses performance that was impaired or made impossible by unforeseen events outside of the party’s reasonable control.
Is Coronavirus a Force Majeure Event?
The determination of whether the coronavirus outbreak can be considered a force majeure event will depend largely on the specific language of the contract at issue. If the applicable force majeure clause specifically lists things like pandemics, epidemics, or public health emergencies, it will be more likely that the failure to perform would be excused. Furthermore, because the WHO has designated the novel coronavirus as a pandemic and governments have imposed quarantines and restrictions on travel, a party could rely on contractual language deeming “governmental actions” or “acts of civil or military authority” as force majeure events.
Even where the pandemic can rightfully be deemed an event of force majeure under the applicable contract, performance is not necessarily excused. Most contracts will require a showing that the party’s performance was rendered impossible (or at least impracticable) due to the force majeure event. If performance is merely made more difficult or more costly, force majeure will normally not excuse performance. Furthermore, contracts will often require specific notice procedures and mitigation requirements on a party invoking force majeure.
Summary
If your performance – or the performance of the other party to your contract – may be affected by the coronavirus outbreak, consider carefully analyzing the specific language of the agreement’s force majeure clause. This will determine whether the pandemic could excuse performance. Similarly, if you are currently engaged in contract negotiations, consider whether to add specific force majeure provisions. Include excusing performance caused by pandemics, epidemics, public health emergencies, governmental actions or acts of civil or military authority.
Contact Max Sneyd for a review of your contract language or other business questions.
Max Sneyd
focuses his practice on assisting clients with intellectual property protection, contract formation and negotiation, and entrepreneurial growth. With 20 years of experience, he leads the firm’s Intellectual Property practice group. He also assists clients on intellectual property litigation, licensing, business torts, entertainment law, supplier disputes.
Other posts to consider:
Attorneys
Michael A. SneydPractice Areas
Business and Corporate LawStay Connected