From the web site – AmericanBar.org.
August 3, 2020
COVID-19 as a Force Majeure. But What Is Force Majeure? My Contract Doesn’t Even Use that Term!
“Force Majeure” – History, Understanding, and Early Applications
As all attorneys know, it is the fundamental principal of contracting that parties are expected to honor their bargained-for obligations. However, what happens when the circumstances under which those obligations are to be performed change due to “a superior force.” This dichotomy represents the very problem the principle of force majeure attempts to address. According to Black’s Law Dictionary, force majeure means “an event or effect that can be neither anticipated nor controlled; especially an unexpected event that prevents someone from doing or completing something that he or she had agreed or officially planned to do.”
A product of the Napoleonic Code, force majeure was originally employed as a pseudo-affirmative defense. It was read into contracts to absolve a party’s failure to perform, assuming performance was rendered absolutely impossible due to, in many cases, an unknown and uncontemplated act of God. In effect, upon a force majeure event, the party was absolved of liability. Not surprisingly, with some of the earliest known applications found in Louisianan law, this French (and Roman) contracting principle permeates throughout the American judicial system in both tort and contract law. However, like many things, force majeure has expanded to excuse performance in circumstances similar to those addressed by the common-law doctrines of impossibility, impracticability, and frustration. But, does COVID-19 even qualify as a force majeure event?
The Contractual Language of Force Majeure
While originally read into contracts, force majeure clauses are now written into contracts for the purpose of allocating risk in circumstances where there is an event or effect the parties could not have anticipated or controlled. For example, some contracts will use general language like “beyond the reasonable control of the Party whose performance is affected” to describe potential occurrences that could qualify as a force majeure event. Comparatively, other clauses attempt to list specific events or causes constituting force majeure events. While it is not likely that COVID-19 (or any specific disease) is listed in a construction contract, many clauses will use substantially similar terms or other events that are implicated in the COVID-19 healthcare crisis. For example, some force majeure clauses include terms such as: “acts of the Government;” “epidemics;” or “quarantine restrictions.” Ultimately, the question becomes whether the general language or the specific terms contemplate COVID-19 as a force majeure event. And, if so, whether COVID-19, as a force majeure event, caused the breaching party’s failure to perform.
Is COVID-19 Really Causing Your Failure to Perform?
In the most literal application of force majeure, COVID-19, the virus, is not the likely cause of a contractor’s failure to perform. In fact, prior global or national pandemics related to the 2003 SARS outbreak, avian flu, Ebola, or Zika suggest that COVID-19 itself may not qualify. This is due to the fact that contractors are, for the most part, still able to dig holes, erect steel, pull wire, and pour concrete. However, the effects COVID-19 has had on society that implicate a contractor’s ability to perform, may provide for a roadmap to invoking a force majeure clause. For example, as manufacturers shut down or idle plants materials may become scare or inaccessible; distributors or wholesalers may be forced to close their doors due to a lack of demand (or supply); seasonal workforces may be restricted due to concerns (founded or unfounded) over immigration restrictions; or, as in many cities, counties, and states across America, government action may restrict certain categories of work or the types of projects that may be performed.
Ultimately, “the devil is in the details” when considering whether COVID-19, the virus, or the implications of the virus will qualify as a force majeure event. Most importantly, contractors, and attorneys, must remember that mere cost increases alone will not suffice. From this, the analysis should start with a review of the specific contract language to determine whether there is a force majeure clause; and, if so, whether it is a general or specific clause. Next, if specific, determine whether terms like “acts of the Government,” “epidemics,” or “quarantine restrictions” are included. Third, and not explicitly addressed in this article, the contractor should identify any time limitations associated with declaring a force majeure event. Finally, an analysis of the available remedies if force majeure applies must be conducted.
Determining whether force majeure applies is a factually intensive endeavor. And declaring a force majeure event in relation to COVID-19 should be based on specific contractual terms, if available, and supported by discrete facts. A blanket statement that the contractor cannot perform will not suffice. In this sense, while COVID-19 is, in its own right, a superior force, the law will require much, much more.