Force Majeure Clauses In The State Of The Union: COVID-19 And Demonstrations
Force Majeure Clauses And COVID-19
Right now is a tumultuous time in our country and world. COVID-19 is a global pandemic that is critically impacting businesses around the world. Additionally, people are publicly protesting racial injustice in our country. All around our communities and cities, businesses are feeling the pressure of reduced or total loss of business due to the virus, political demonstrations, and government regulation. Many business owners are now, or will be, facing unique challenges and issues concerning their businesses. As a business owner, one issue you may face is whether you must bear the cost of any losses or disruptions. Or, you may want to postpone or halt performance, a decision that could lead to a lawsuit. However, there are ways that you may protect your business from breach of contract liability. One important place to start when assessing liability is to check whether your contracts contain a force majeure clause. A force majeure clause is a provision that lists events that prevent a party from fulfilling a contractual obligation. Such an event must be unforeseeable at the time of formation and beyond the reasonable control of a party. Therefore, force majeure does not cover nonperformance due to negligence, malfeasance, or usual and natural consequences of external forces.
What Is A Force Majeure Clause?
A force majeure clause is common in many commercial contracts. These clauses are worded in a variety of ways to meet the particular needs of the parties and the type of industry. In Texas, courts look to the specific language of the force majeure clause when applying them in disputes. So, the terms used and the plain meaning of those terms are important. Thus, it is recommended that you review such clauses with your attorney and form a strategic response plan to COVID-19 or the political demonstrations.
To determine if COVID-19 or the protests will trigger a force majeure clause in your contract, you need to check the events enumerated in the clause. Force majeure clauses will include a list of unforeseen events that can be used to defend against a breach of contract. Some examples of unforeseen events are (but are not limited to): “epidemic, pandemic, or other national emergency;” “order of necessity of the government;” “disease;” “labor shortages;” “sabotage and acts of terrorists;” and “riot or civil disturbances.”
Force Majeure Events
The lack of such language in your contract is no reason to panic. There are other provisions that might enable you to claim a force majeure event. For instance, catch-all language such as “any other cause,” “any similar cause,” or “any like cause” may be used to cover unforeseen events at the time of drafting the provision. When handling cases relying on catch-all provisions Texas courts apply the ejusdem generis doctrine to determine whether the provision applies to events not explicitly listed. Under ejusdem generis, Texas courts look at the exact language of the enumerated items in the provision and determine whether the unlisted events are similar to those in the provision.
Next, if the unforeseen event causing performance disruptions qualifies as a force majeure event, it must be determined whether it meets the standard for excusing performance. Furthermore, the event must be related to the nonperformance. In Texas, performance is not excused if fulfilling your obligation has become difficult or not profitable. Rather, the usual standard demands that the event has caused performance to be “illegal,” “impossible,” or “not reasonably possible.” Typically, the standard varies and is defined by the provision itself. Be sure to go over your circumstances and the specific language of your contract with your attorney to determine the standard.
Importantly, if the unforeseen event meets the standard to excuse performance, you must determine whether the force majeure provision requires a specific notice procedure. Failure to follow the notice requirements may prevent you from using a force majeure clause and may expose you to liability for breach of contract.
The next strategically important step is to determine when the event occurred and when you need to give notice to the other party. The event may have occurred at different times so it is important to determine the exact time because that time will tell you how long you have to give notice. For instance, the event may have occurred (1) when COVID-19 was discovered in Wuhan, China; (2) when national travel regulations were imposed; (3) when local governments began imposing stay-at-home orders and other business restrictions.
Alternatively, the event might have occurred (1) when protests following the death of George Floyd began in Minneapolis; (2) when businesses began experiencing disruptions from theft and physical damage; (3) when curfews, closures, and government blockades were implemented; (4) or when businesses and property owners began implementing security measures such as boarding up facilities or suspending operations to protect property and employees.
If Unsure Seek Legal Counsel
If you are unsure whether your contract protects you from breach of contract liability, seek legal counsel and begin putting together a plan of action to help you recover or protect yourself and your business. The important thing to remember is that the exact language of the provision will determine whether you can rely on it and delay or halt performance. It is recommended that you carefully examine your contracts and their exact language with your attorney to determine if your contract includes a force majeure clause and whether you have a good cause for claiming it.