In a prior post, this blog explored a range of defenses to contract claims brought in the wake of nonperformance caused by the ongoing novel coronavirus (COVID-19) pandemic. This post examines one such defense in detail—the force majeure defense—and how the unique circumstances of the pandemic may impact attempts to assert or defeat such a defense.
So-called “force majeure” clauses are commonplace in business contracts. A typical force-majeure clause has three main features: (1) a list of enumerated events, (2) one or more catch-all provisions, and a (3) foreseeability requirement. While the precise language will vary from contract to contract, a typical force majeure clause looks something like this:
Force Majeure shall mean an act, condition, or event that is not foreseen and not reasonably within the control and not a result of the fault of the Party claiming Force Majeure, including without limitation, acts of God; acts of the public enemy; insurrections; riots; labor disputes; boycotts; unusual geologic conditions; fires; explosions; floods; embargoes; acts of judicial or military authorities; acts of governmental authorities; inability to obtain, maintain, renew or operate under necessary permits, licenses, and governmental or third-party approvals after applying for same using their reasonable commercial efforts; or other such similar acts, conditions, or events which prevent performance.
The heart of a force majeure clause is its list of enumerated events—things that the drafters specifically contended would qualify as forces majeure. Virtually every force-majeure clause includes express provision for some or all natural disasters, along with civic, bureaucratic, and military disruptions. Where necessary, well-drafted force majeure clauses will include—or expressly exclude—events specific to the subject matter of the contract.
Very few force-majeure clauses make specific provisions (or exclusions) for pandemics. This will no doubt change in the wake of COVID-19, and as climate change continues to introduce novel diseases into the human community.[i] In the weeks prior to widespread awareness of the coronavirus, L Brands, Inc. negotiated a force-majeure provision that excluded pandemics in connection with the sale of clothier Victoria’s Secret to a private equity firm.[ii] Although L. Brands elected not to pursue litigation to enforce the deal, exempting a pandemic from consideration as a force-majeure event would have hampered Sycamore’s ability to get out of if base on a force-majeure defense.[iii]
Contracts that do not enumerate a pandemic as a force-majeure event may still excuse performance because of the impacts of COVID-19. The wide variety of municipal, county, and state directives being issued in the wake of the coronavirus may qualify as a “government action” and thereby excuse a party’s performance under a typical force-majeure clause.[iv] This is, of course, complicated by the patchwork of overlapping directives. A clear understanding of the scope and timing of government directives in force during the period of the alleged breach will be critical to establishing—or defeating—a force-majeure defense on these grounds. Likewise, in some contexts, labor activism and civil unrest related to the pandemic may fall within the scope of a typical force-majeure clause.
But there are limitations to this interpretation. The next part this post will discuss some of those limitations and how they may apply.
[i] https://www.propublica.org/article/climate-infectious-diseases.
[ii] https://www.legalcheek.com/2020/05/did-davis-polk-predict-the-pandemic/.
[iii] https://www.nytimes.com/2020/05/04/business/coronavirus-victorias-secret-sale-falls-apart.html.
[iv] See, e.g. Islamic Republic of Iran v. Boeing Co., 771 F.2d 1279, 1289 (9th Cir. 1985).