Aside from the human toll, the coronavirus is having a serious economic impact on the global economy and its supply chains. The dramatic steps taken to control the spread of COVID-19, things like closing bars and restaurants, banning mass gatherings and restricting travel, have prompted companies to cancel large scale events — including concerts, festivals, sporting events, and conferences around the globe.
Now the question is:
If your business is impacted by this pandemic and the related efforts to stop it, is it significant enough to trigger force majeure (mah-jure) provisions in your contracts? Well, let’s look at the basics:
A force majeure clause releases you from meeting obligations and liabilities when circumstances arise beyond your control that make honoring the contract inadvisable, commercially impractical, illegal, or impossible.
The term once pertained to “acts of god,” but has been expanded to include things like strikes, market shifts and government actions. The primary test for force majeure is determining whether the particular event that caused the problem “could have been prevented by the exercise of prudence, diligence and care.” When courts determine the applicability of force majeure, they have historically focused on:
- whether the event qualifies as force majeure under the contractual language;
- whether the risk of non-performance was foreseeable and able to be mitigated; and
- whether performance is truly impossible.
There is a lot of uncertainty surrounding force majeure clauses. If you have questions, call attorney Paul Burkhart or visit paulburkhart.net.