Did you fail to spell out “pandemic” or “disease” in your force majeure clause? Or fail to include a force majeure clause altogether in your contract? Should you have foreseen the chaos caused by COVID-19? The language of contracts will likely be changed forever in the wake of the disruption to businesses as a result of COVID-19. While many factors will be weighed by the courts as force majeure clauses are triggered as a result of COVID-19, it is key to understand that contract law, most especially in particular states, may provide more than one alternative to enforcing a force majeure clause.
Neema Anini’s piece on alternatives to force majeure insightfully explains contract law’s recognition of other legal doctrines such as impossibility, frustration, and impracticability – with regard to the latter, Anini writes:
“For performance to be ‘impracticable’, the event must be unforeseeable and not caused by the party expected to perform. Yet, a situation where performance is unprofitable or inconvenient is usually not enough. Applying the impracticability doctrine to the coronavirus pandemic means prevailing on such a claim will depend upon the facts and circumstances of the contract. Impracticability requires a showing that performance can only be accomplished with “excessive and unreasonable cost”. In most courts, impracticability is also a high bar.”
The law doctrines of “frustration” and “impossibility” provide additional options for exploration according to the law firm Baker McKenzie. Said doctrines are recognized in the majority of US states and may indeed be invoked due to non-performance or delayed performance but not without resistance.
Baker McKenzie’s article provides the following example of a potential snag:
“For example, New York law limits the doctrine of impossibility to cases where (1) performance is “objectively” impossible due to the “destruction of the means of performance” by an act of God, force majeure event, or the subsequent passage of law rendering performance illegal or (2) there has been a change in circumstances so fundamental that it would be unjust or contrary to public policy to hold the parties to their original agreement. Generally speaking, “impossibility” could include, for example, the death or incapacity of a person necessary to performance or the destruction of an irreplaceable good or component. Impossibility generally would not include events like the destruction of commutable inventory or inconvenience.”
Yet another caveat in some states, such as Texas and New York, is that the provision of a force majeure clause may preclude the possibility of invoking the doctrine of “impossibility” at later date – most especially if the condition was foreseeable yet not cited in the force majeure clause.
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Contract for WILLIS TOWERS WATSON PLC, Financial Conduct Authority, Willis Group Holdings Public Limited Company, Willis Limited