Blog Is There A Force Majeure Defense Based on Novel Coronavirus (COVID-19) to Avoid Obligations Under Contracts?

Is There A Force Majeure Defense Based on Novel Coronavirus (COVID-19) to Avoid Obligations Under Contracts?



 

The direct and indirect effects of COVID-19 disease will cause many persons and businesses to fail to meet obligations under their contracts. Do COVID-19 issues provide a force majeure defense to avoid contractual obligations?

Force Majeure

“Force majeure” translates from French as “superior force”. As a legal concept, force majeure refers to contracting parties seeking to excuse their contractual performance because of circumstances outside of their control. Common historic examples of force majeure are war, terrorism, acts of god (such as natural disasters), government action, and strikes. As something that was not caused by a contracting party, but rather arose outside of the party’s control, a contractual breach attributable to COVID-19 could possibly support a force majeure defense.

In Contracts

A force majeure argument is most likely to be successful when a contract contains a force majeure clause. Even if a contract contains a force majeure clause, courts generally have interpreted such clauses on a narrow and limited basis. The key will be that all the contractual conditions to make a force majeure defense have been met. For example, if an insurance contract requires that the force majeure event causes a business to close, a restaurant that lost most of its business because the government ordered it to close its dining room and bar as a result of COVID-19, but still provides a “carry-out” service, likely would be unable to claim force majeure as it still conducts some business. Notice and mitigation of damages conditions are also common under a force majeure clause.

Outside of Contracts

Force majeure defenses are very difficult to make when the contract lacks any force majeure language. In these cases, there are two other possible defenses to raise. First, an “impossibility of performance” defense is based on the argument that it is impossible to perform a contractual responsibility. For example, a banquet hall that could not possibly perform under its contract to provide space for a wedding if the government ordered the closing of all banquet hall facilities because of COVID-19 may be able to assert an impossibility of performance defense. Second, a “frustration of purpose” defense is based on the argument that the purpose for which a contracting party entered into a contract was frustrated. For example, a tenant that leased space to operate a “pop-up”, short-term retail Halloween store will have the purpose of its lease frustrated if the government was to prohibit Halloween activities because of COVID-19 and may be able to assert a frustration of purpose defense.

Hire A Contract Lawyer During the Novel Coronavirus (COVID-19) Pandemic

Whether relying on a force majeure, impossibility of performance, or frustration of purpose defense, these are complicated legal theories demanding the hiring of a contract lawyer. A contract lawyer with experience and success in prior contractual disputes in your applicable jurisdiction can review your contract and facts and circumstances and determine how you can most effectively make a force majeure, impossibility of performance, and/or frustration of purpose argument to excuse your contractual breach because of COVID-19 issues.