Pandemics and Force Majeure
1. What is a ‘force majeure’ clause?
‘Force majeure’ clauses excuse or defer performance of a contract in the event of certain circumstances beyond a party's control that may render performance impractical or impossible. These clauses typically provide a list of specific events that, upon occurrence, would excuse or delay a party’s performance or in some cases, permit the termination of the contract. An example force majeure clause is below:
Force Majeure - Neither party shall be liable for nonperformance or breach of this Agreement if caused by events outside the reasonable control of a party including without limitation, acts of God, war, terrorism, riot, fire, restrictions imposed by governmental orders, rules or regulations (each a “Force Majeure Event”).
2. How does it work?
Where an event or series of events triggers a force majeure clause, a party may defer or be released from its duties to contractually perform without liability. There is no uniform rule as to when a force majeure clause excuses performance because the scope of these clauses depends on the express terms. For example, under New York and New Jersey law, force majeure clauses must be narrowly construed, meaning that only events specifically listed in the clause will excuse a party’s performance. Similarly, under Delaware law, force majeure provisions are interpreted according to their plain meaning. Although broader language like “acts of G-d” may arguably cover COVID-19, specific language is more likely to make a pandemic stand stronger as an excuse to perform. In jurisdictions where courts narrowly construe force majeure provisions, “acts of G-d” typically refer to natural disasters such as hurricanes, earthquakes, floods etc.). Therefore, a force majeure clause that is limited to a specific enumerated list would likely only cover the COVID-19 pandemic if it includes specific language such as “public health related outbreak”. As a general proposition, the force majeure clause is a contractual provision for the common law exception to performance known as “impossibility of performance” so the event must actually apply to the party at issue. Parties may negotiate force majeure provisions and limit the circumstances under which such excuse may be enforced.
3. How does it affect the obligations of the parties to a contract?
The consequences for the parties where a valid force majeure event has occurred will depend on the nature of the affected party’s obligations under the contract, as well as the remedies expressly contemplated by the force majeure clause. Remedies typically include an extension of time to complete performance, or if the event extends over a longer period, the invoking party may have the option to terminate the contract. It is important to note that force majeure clauses may not excuse performance where the impact of a force majeure event is contemplated in another provision of a contract – for instance, a business continuity or disaster recovery provision. In short, these clauses need to be reviewed in the context of the specific event and the impact of the event on the parties to the contract.