The World Health Organization declared the COVID-19 as a pandemic on March 11, 2020. The domino effect on our entire global economy has been swift and profound—businesses are being forced to shut down, our airports are empty and we are all concerned for our collective health.

Many businesses and consumers are worried about the ability to cancel or revise their contracts. Typically, companies and individuals enter into contracts to mitigate for situations like an unanticipated business interruption, such as the situation we are all facing with COVID-19.

Will you be able to cancel your meeting without liability for cancellation fees? Will you be able to go ahead with the meeting, despite reduced attendance, without liability for attrition damages? A key tool in managing the risk of such challenging circumstances is the force majeure clause.

Force Majeure Clauses

A force majeure clause is a contract provision that excuses a party’s performance of its obligations under the contract when certain circumstances beyond the control of a party arise, making performance inadvisable, commercially impracticable, illegal, or impossible. These clauses are common in contracts and are a valuable resource in determining how to navigate performance when there are issues affecting performance that are outside the parties’ control. When determining whether the coronavirus might constitute a force majeure event in your contract, you should consider the following:

A. Does your contract include a force majeure clause or similar provision?

A force majeure clause generally states that the occurrence of certain unforeseen events or circumstances beyond a party’s reasonable control will excuse that party from its performance obligations. The provision usually lists a series of force majeure events or circumstances, the occurrence of which will excuse performance for the duration of that force majeure event (and sometimes for a reasonable period thereafter) and relieve that party from liability caused by such nonperformance.

B. Does the force majeure clause include language that would encompass the coronavirus?

Examine the specific language in the force majeure provision to determine whether the coronavirus constitutes a force majeure event. See if the clause expressly includes a pandemic, epidemic, public health emergency, outbreak of communicable disease, or other similar occurrence as a force majeure event, which would increase the likelihood of enforceability.

C. Is the coronavirus the reason the party is unable to perform the agreement?

Establishing causation between the coronavirus and the inability to perform contractual obligations is required to invoke force majeure. Such a determination will be fact-sensitive. Even if you agreement includes a provision that encompasses the coronavirus, this will not automatically excuse performance or relieve it from liability resulting from nonperformance, as you must still meet the other force majeure requirements. The coronavirus must be the true reason your client cannot satisfy its contractual obligations.

D. Weigh the risks of declaring force majeure.

Before invoking the coronavirus as a force majeure event, carefully consider the potential ramifications that such action may trigger. If performance has been rendered impossible or economically unfeasible, there may be no other viable alternative. Invoking force majeure may, however, be accompanied by business and legal perils. There could be unintended and unwanted consequences that the you should contemplate. For example, your business’s reputation in its industry could be impaired, relationships with critical customers could be jeopardized, and the terms of the contract may permit the other party to terminate the agreement.

We advise clients on numerous legal issues relating to COVID-19 and its effects, such as force majeure clauses in contracts and negotiating commercial agreements in light of world events.

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