01 May The Fight Over Force Majeure: A Result of the Coronavirus
We previously discussed that there will inevitably be a significant amount of litigation as a result of the fallout from business disruptions. A number of business contracts have gone unfulfilled for one reason or another — workers that cannot come to work due to the quarantine, supplies that could not be shipped because businesses had to be closed, etc. As a result, there will inevitably be breach of contract claims filed, and a number of parties falling back on force majeure, or the clause written into most contracts that allows performance to be suspended or cancelled due to an event that can include anything from an “Act of God” to civil disorder, war, or any other emergency that is beyond the powers of the parties involved, such as a government order. Some have even successfully argued that an economic recession meets the legal standard for force majeure.
However, the ability to successfully use force majeure often depends upon what is specifically written in the contract clause, as well as the ability for the company seeking to invoke the clause to demonstrate that there is a link between the coronavirus and its failure to perform. This is why companies should always work with experienced business litigation attorneys in initially drafting contracts so that they are prepared in the event of an emergency dispute (i.e. so that their force majeure provision specifically references a pandemic/epidemic, disease outbreaks, government acts, etc.). While most contracts likely include a force majeure clause, a minority explicitly include public health events such as the coronavirus pandemic, which could make these legal battles more difficult than many companies realize, especially since in many cases, these clauses are simply included as boilerplate terms without a second look at specific wording. When the contract fails to define what constitutes an Act of God, the parties will typically have to go to court and rely on legal precedent applied to their particular circumstances. It is also important to remember that force majeure requires actual impossibility, not simply difficulty, and there cannot be any negligence on the part of the party invoking the clause.
Force Majeure in Recent Sports Conflicts
Force majeure conflicts have already been playing out in news headlines. Take, for example, certain employment contracts that have been in the news recently, like those of NBA and NHL players. These leagues included force majeure language in their agreements with players that allow them to withhold a certain amount of the players’ paychecks in the event of force majeure; specifically, the NBA’s clause refers to “epidemics” as force majeure events, which will inevitably affect the funds owed to players. In addition, a number of companies that advertise in sports events are also trying to use force majeure as a way to justify cancelling ads that were going to appear during sports events.
Airline Companies and Refunds for Cancelled Flights
There is also the issue of companies invoking force majeure clauses when it comes to customers. For example, some international airline companies have claimed that, due to “a force majeure situation,” they are unable to issue full refunds to passengers for canceled flights. However, in April, the U.S. Department of Transportation announced that passengers must be provided full refunds because the issue in that case is not what is within the control of the airline, but rather that the cancellation is through no fault of the passenger.
When There is No Force Majeure Provision
Without a force majeure provision, there still may be grounds to excuse performance due to the coronavirus. California, for example, has a common law impossibility defense which includes impracticability, whereby one can argue that performance could only be accomplished via “excessive and unreasonable” cost. New York courts, however, are more hesitant to apply common law doctrines like impossibility to excuse nonperformance. Arguing that performing was impossible due to the coronavirus is more likely to be successful if a government restriction prevented that performance. Companies could also try to put forth a frustration of purpose argument, making the case that the virus changed the entire purpose of the contract or rendered it impossible to perform.
Contact Heerde Blum LLP–California and New York Business and Contract Covid-19/Coronavirus Litigators With Any Questions or Concerns
Companies will inevitably need to assess their contracts to determine what their rights and remedies are as a result of this pandemic. If you are located in California or New York, contact Heerde Blum LLP today to find out how we can help.