Force Majeure Clauses During COVID-19 and What do They Mean for my Contract?

Force Majeure Clauses During COVID-19 and What do They Mean for my Contract?

In the law, force majeure, meaning “superior force” in French, refers to a contractual provision that typically operates to excuse both parties to a contract from performing their contractual duties due to unforeseen circumstances beyond their control. Rarely heard outside of legal classrooms or commercial real estate contract disputes, this legal term of art is now gaining traction with the spate of recent stay at home orders issued in the area due to COVID-19. Parties to service contracts, commercial real estate, and even wedding venues, are clamoring to determine whether they are excused from performing under a contract or if there is limited liability due to a “force majeure”.

First, parties to both sides of this issue must carefully review their contract to determine whether it even includes a force majeure provision. Even if the contract does not specifically set forth a force majeure provision, a party may still be covered by a “Termination for Cause” provision that addresses like circumstances. Many contracts can be quite lengthy and this is an example of when you especially will want your attorney to dig into the fine print for you!

Having located your force majeure or termination for clause provision, your attorney will examine the precise language to determine whether it covers the COVID-19 pandemic and its associated fallouts. This is because whether a party can rely on a force majeure clause to excuse performance will depend entirely on the specific language of the contract, the party’s particular circumstances, and the law of the jurisdiction under which the contract is interpreted.

In most force majeure clauses, unforeseen circumstances will include large scale disasters or “acts of God” that the parties could not reasonably foresee, such as acts of terrorism, riots, natural disasters, public health outbreaks, or labor strikes. This language is critical because Courts in Maryland and Washington D.C. generally will not excuse a party’s nonperformance unless the precise language of the contract identifies the particular circumstance under which the party seeks relief. If your force majeure clause contains the words “pandemic” then you may likely be in luck.

You may also be covered under a catch-all provision that is triggered when there is an emergency beyond either parties’ control. However, jurisdictions diverge in how they interpret the broadness such clauses. For example, in Virginia, where a force majeure clause defense is brought under a clause’s catch all “acts of God” language, a court will only excuse the party’s nonperformance if the act of God was the sole proximate cause of the other party’s injury and not even partially the result of the party’s failure to mitigate the damage caused by the act. Cooper v. Horn, 448 S.E.2d 403, 425 (Va. 1994). In contrast, Maryland courts will instead focus on whether a party’s inability to perform was directly caused by an event identified in the clause. In re Regional Bldg. Systems, Inc., 320 F. 3d 482, 485 n.5 (4th Cir. 2003).

Historically, given courts’ narrow interpretation of force majeure clauses, most parties did not find relief under their contract’s particular clause. However, we are treading new waters and these channels may be opening up on a wider level for frustrated parties. Parties should also ask their attorneys to examine whether performance is excused under other corresponding legal doctrines, including the doctrines of impracticability, impossibility, and frustration of purpose, as these offer other avenues to a party to achieve relief from their contractual duties.

If you have any questions about your contractual rights and obligations, please do not hesitate to call Elizabeth J. McInturff at (240) 743-5410 or elizabeth@jdkatz.com. We will develop best legal and business practices to fit your particular needs and guide you through this process.

By: Elizabeth J. McInturff, Esq., and Niall McMillan

 

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