In this article, we’ll define “force majeure” and discuss if this type of clause can really be enforced, how the language of the contract affects a force majeure clause and how to prove or disprove the validity of force majeure clauses in business contracts.
To say the world of business has been turned upside down, inside out and set on fire by the coronavirus might be an understatement. History has shown us that traumatic, world-changing events are not kind to maintaining business-as-usual; with small businesses often taking the brunt of the disruption. As of writing this, uncertainty due to the Covid-19 pandemic still rules the world, causing business owners and clients alike to ask the question, “can I get out of this obligation and cut my loses in order to weather this storm?” From large corporations to mom and pop shops, attorneys will be combing through contracts for months as the economic fallout of the coronavirus outbreak continues.
Cornel Law School defines force majeure as:
“A provision commonly found in contracts that frees both parties from obligation if an extraordinary event prevents one or both parties from performing. These events must be unforeseeable and unavoidable, and not the result of the defendant's actions, hence they are considered "an act of god".
Most contracts will list items such as governmental actions, wars, floods, earthquakes, and other natural disasters as reasons for satisfying a force majeure clause in a contract. It’s extremely unlikely that any contracts list “viral pandemic” or “quarantines” as an item under the force majeure clause, but state and federal mandated closures would likely fall under governmental actions. Either way, proving the legitimacy of a force majeure clause may be difficult if the proper language is not in the contract, and the decision will ultimately be up to the court’s interpretation of the law.
There are four general factors that trigger a force majeure clause:
Many contracts contain generalized language under their force majeure clause stating that the excuse of performance obligations and relief from the contract should only be feasible if it is “impossible” to complete the obligations listed in the contract. Proving something is impossible sets a very high bar. A more realistic wording might be excusing performance when there is a “clear physical or psychological risk,” “it would be illegal,” “commercially impracticable,” and impossible. Furthermore, using language that contains specific words such as “emergencies” that come after a comma within the same grouping, would cause the entire list of items to be judged under that one word or description. For example, using the words “or any other emergency” after a comma at the end of the sentence leaves room for arguing that the situation was not necessarily an emergency and should not be covered under the clause.
Including language that allows for some flexibility in performance according to the force majeure can be a good idea for both sides. For example, an event company and its client may not want to have to cancel an entire meeting due to unforeseen circumstances and deal with the legal fallout associated with the force majeure clause, but instead, restructure the meeting to accommodate both sides. Drafting the force majeure clause to excuse liability for both under-performance and nonperformance can give both sides some wiggle room to work out their differences and possibly salvage the event.
Relief under a force majeure clause is not always guaranteed. Below is a handful of the prominent factors courts consider when awarding or denying relief in force majeure cases.
Burden of Proof
The burden of proof falls on the affected party. They must prove that an event of force majeure occurred beyond their reasonable control resulting in the inability to perform their contractual obligations, or significant delay in their ability to perform.
Contract Scope and Interpretation
Here is where the language of the contract comes under scrutiny. There is no agreed-upon definition of what legally constitutes a force majeure. Most contracts will identify a list of scenarios that would legally satisfy the force majeure clause while attempting to provide blanket language for any other event. Common items include an Act of God, governmental intervention/action, weather, natural disasters, etc. More specific language will depend on the type of business transaction. The enforcement of force majeure clauses following the Covid-19 pandemic will make for an interesting and sobering look at legal interpretation for future contracts. Most force majeure contracts will not include items such as market volatility, failure in equipment, loss of manpower, etc, as those items are difficult to prove and often viewed as a failure on the part of the providing party to have proper operating contingencies in place.
Causation mainly refers to the affected party being required to prove that the force majeure event was solely to blame for the inability to perform under the contract and not some other issue. Again, the contract language will have some bearing on proving causation.
Deadlines and Notification
The affected party is required to notify its counterparty of the force majeure event and the resultant inability to satisfy the contractual obligations. This deadline differs from state to state and from contract to contract.
How To Move Forward
If you feel that you have a legitimate force majeure claim, seeking out the guidance of a qualified attorney is a good first step. Due to the complexity and interpretation of force majeure clauses, it is likely that some form of legal intervention will play out. If you have any questions please don’t hesitate to call us at 630-324-6666.
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