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A new look at the old standard: “Force Majeure” clauses

With Covid-19/Coronavirus causing cancellation of events and transactions around the globe, people are naturally looking at whether they must still perform their contractual obligations and whether they are entitled to refunds of deposits and advance payments they've made.

Most contracts do include a so-called “force majeure” clause as part of what's usually considered the boilerplate. Contract language that's fairly universal and non-negotiatiable. But these clauses are so rarely examined carefully, many of us just assume that events like the current pandemic are covered. Unfortunately, that's not always the case.

What is “force majeure”?

A force majeure clause (the term is French for “superior force”) is a contract provision that allows a party to suspend or terminate performance of its obligations when certain circumstances beyond their control suddenly occur, and thus make that party's performance either inadvisable, impractical, impossible, or even illegal.

The question of whether such a clause applies to a certain situation depends on a careful reading of the precise language of the clause, as well as evidence that the event was (a) unforeseeable, (b) beyond the party's control, (c) not the party's fault or responsibility, and (d) actually severe enough to render performance difficult or impossible.

What's covered?

Most force majeure clauses include a list of events that are agreed to be a basis for excuse of performance. Things like “acts of God” (which may include things like fire, flood, earthquakes, hurricanes, etc.), war, riots, strikes, and governmental actions.

When interpreting these kinds of provisions, Courts typically take a fairly narrow approach to construction of things, keeping the scope limited to things of a like kind (following a doctrine known as edjusdem generis. So, unless your clause actually includes reference to “epidemic”, “pandemic” or similar, such an event probably will not be deemed to provide an excuse for performance.

But check things carefully. In the current scenario, governments are taking action to control the disease by limiting public gatherings and events, so those actions may still trigger the clause's operation. But again, narrow interpretation is the rule. So, whether a state government's limits on events over a certain size right now can justify canceling an event 5 months away is an open question.

Notice requirements

It's also important to note that most force majeure clauses include a notice requirement. So, if you're invoking the clause as an excuse not to perform an obligation, you'll likely need to send a formal, written notice of your suspension or termination of the contract in question.

Need help interpreting your force majeure clause, and determining a course of action? Give me a call. We're working remotely, but still looking out for you!

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