As the concern of community spread of the novel coronavirus (COVID-19) intensifies, causing the World Health Organization to declare a public health emergency, we are seeing countries around the world impose travel bans and quarantine citizens. Within the United States, state and local governments are warning (and some going insofar to prohibit) against public gatherings, and more and more companies are imposing employee travel restrictions and implementing social distancing policies. These warnings and travel restrictions have caused, and continue to cause, business and operational disruptions, including conference and other large professional event cancellations, supply chain and distribution channel issues, and employee shortages. Such disruptions can make it difficult for a business to perform various contractual obligations that require travel or onsite employees, and businesses are increasingly looking to “Force Majeure” clauses as a potential means to excuse performance.
Most commercial contracts include a “force majeure” clause. The generally accepted meaning of Force Majeure is “[a]n event that can be neither anticipated nor controlled. The term includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars).” Blacks Law Dictionary 657–58 (7th ed. 1999). These clauses are intended to excuse a party’s performance under a contract in the event of a “force majeure” event. The language of Force Majeure clauses varies widely from contract to contract. If you or your business is looking to invoke this provision in the wake of the COVID-19 outbreak, it is extremely important to review the specific language of the contract, as the type of events that constitute a Force Majeure event depend on how the contract is written, including who has the right to invoke the Force Majeure event (some contracts do not make it mutual) and whether explicit reference to the event giving rise to the failed performance is included within the Force Majeure provision. With respect to COVID-19-related situations, events such as quarantine, epidemic, pandemic, national or regional emergency, labor stoppages, breakdown of logistics chain or government action, which are commonly included in Force Majeure provisions, could potentially be invoked.
Aside from Force Majeure provisions, other provisions within the contract should also be considered. For example, are there relevant contractual notice provisions or timing considerations related to declaring a Force Majeure event? Is there a duty to mitigate by the non-performing party? What are the governing law and applicable dispute-resolution provisions? Is there an arbitration provision governing disputes?
If a contract does not contain a Force Majeure provision, or if the COVID-19 outbreak does not fit into one of the defined Force Majeure events, there may be alternative avenues for non-performance, depending in which state you are. For example, the doctrines of impossibility, impracticability, or frustration of purpose may excuse performance under a contract, but these doctrines generally involve fact-intensive questions that depend on specific contract language, as well as the parties’ expectations and facts giving rise to the claim.