Acts of God or Acts of Government

Talks that major sports leagues like the NBA and NHL may recoup salaries for missed games.

Cancelled weddings, travel plans, music festivals, and countless other events.

Restaurant food distributors estimating losses in the billions.

With businesses at every level unable to uphold their contractual duties in the time of COVID-19, how do they protect against liability and what is this pesky little provision you keep hearing about, probably for the first time?

Force majeure, or “Superior Force” in French, contract provisions excuse or delay a contracting party’s nonperformance when unforeseen circumstances outside of that party’s control make it impossible to fulfill said contractual obligations. Such matters are not to be taken lightly, as courts don’t favor releasing parties from their bargained for contracts without good cause. As such, the scope of force majeure clauses is usually dependent on its express terms, and interpreted narrowly therein.

Force majeure clauses seek to release or limit a party’s liability in the face of extraordinary circumstances that were reasonably unforeseeable and outside the control of the parties. Qualifying events are usually listed in these force majeure provisions specifically, hence the reason such provisions will likely be interpreted narrowly by the courts. Such provisions may enumerate any of following extraordinary, unforeseen events: epidemics or pandemics, war or warlike operations, labor disputes, civil commotion, acts of terrorism, government regulations or controls, fire or other casualty, inability to obtain any necessary materials or services, or Acts of God, meaning most natural disasters like tornados, hurricanes, earthquakes, etc. The specific language is further paramount as parties may not be completely relieved of liability if the provision in place requires suspension, postponement, or workaround of certain performances for a defined period of time. 

It is therefore quite possible that some force majeure provisions actually list “pandemics” as a qualifying event. However, as contract drafters are (unfortunately for their clients) not fortunetellers, each contract will anticipate for different events based on the nature of the parties, their related business or industries, as well as historical precedent. Thus, while it may have been over 100 years since we have seen a pandemic of this magnitude, what’s more unprecedented has been the global response and governmental ordered shutdowns by county, state, and federal mandates. This unprecedented response to a global pandemic may thusly be cited as the reason for why businesses cannot keep up with their contractual duties and obligations. Consequently, the real question may be whether the need to breach arises from an Acts of Government or Act of God and how that argument will impact and shape the legal landscape in a post-COVID-19 world.

In Florida, there is very limited case law on the books regarding Force Majeure clauses generally, and virtually none regarding pandemics. The ground for novel legal argument is accordingly ripe. If a contract contains a force majeure clause, the battlefield is its terms. If it doesn’t specifically list “pandemic” as a qualifying event, COVID-19 could arguably fall under potential “catch-all” language, “Acts of God” wording, or that regarding civil authority or governmental regulations or controls should there be any. Regardless, force majeure may quickly become common grounds for defense against breach of contract claims when and if available.

If the contract lacks a force majeure provision, there are other legal doctrines that will come into play as parties defend against nonperformance claims: impossibility of performance, impracticability of performance and frustration of purpose. Similar to force majeure, these defenses are fact dependent and must be necessitated by third-party intervention or other forces that create the impossibility of performance. Generally under these doctrines economic downturn or profitability arguments are not acceptable grounds for nonperformance; however, given that governmental orders arguably caused the related nonperformances, businesses will be looking to every defense possible against liability resulting from events that were outside their control and which they had no fault in causing. On the other hand, companies will also be seeking damages they have incurred based on the various breaches of contract that will arise out of the COVID-19 closures, economic downturn, or otherwise.

It would be important to have your contracts review in anticipation of potential contractual disputes should your business be affected. Some force majeure provisions require sufficient notice of the impact of relevant force majeure occurrences, other may require mitigation or delayed performance. Further, such legal arguments are fact intensive as they are based on the varying degrees of whether performance was merely impeded or hindered versus prevented by impossibility.

The effects of COVID-19 on the economy and business will last long beyond the closures. It will be equally important for all sides to a contract to understand where they stand in terms of their rights and duties once businesses reopen. From there, parties can then engage in moving forward to re-negotiate the terms of their contract under any relevant provisions and prepare addendums accordingly. However, if parties are unable to reframe their business dealings or find themselves in a contractual dispute related to the global COVID-19 pandemic, then legal proceedings may ensue.

If your business has been affected by COVID-19, contact Chibani Law to discuss your legal solutions. Chibani Law will continue monitoring the COVID-19 pandemic and its impact on businesses and the law.

Steps to take:

1. Contact an attorney to review your contract and discuss any potential breaches in light of COVID-19 and shutdowns.

2. Discuss possible resolutions in light of subject contract provisions.

3. Negotiate or have counsel negotiate possible suspension or workarounds with business relations and parties to the contract.

4. Consider other legal courses of action in the alternative.

5. Contact or retain counsel if any disputes have been raised by any contracting parties to assist in negotiations or other contract disputes, including legal actions brought against you.