Force Majeure & COVID-19
The spread of the Coronavirus (“COVID-19”) coupled with the impact of the government’s responsive measures continue to significantly disrupt contractual & commercial relationships. Affected parties who are unable to perform contractual obligations due to the pandemic are turning to the force majeure clauses listed in their contracts for potential relief. Lay-offs occurred and owners are being forced to make tough decisions as the disruption continues. Our firm can assist you and your business. Disputes aside, the contract is in charge! Guerra | Days Law Group is well aware of COVID-19’s impact on small businesses and our Houston construction attorneys are hard at work, finding solutions.
Generally, contracts state certain extenuating circumstances which can sometimes extend project deadlines or, in some circumstances, allow for non-performance. Events or situations stated to be beyond the reasonable control of the contractor is known as a Force Majeure clause. However, construction contracts may not explicitly name this clause as Force Majeure. Performance demanded by contract can be altered by contract. Find out if COVID-19 is covered and understand your rights. We encourage a review of these clauses with a qualified Houston construction attorney from our firm for a better understanding.
What is a Force Majeure Clause
Force majeure clauses are included in contractual language to remove liability for natural and unavoidable catastrophes that may interrupt the expected course of events and prevent parties from fulfilling their contractual obligations. Force majeure clauses often define other specific circumstances beyond the parties control that could also allow the parties to suspend, defer, or release the duty to perform without incurring liability.
Many force majeure clauses also include general “catchall” language to further broaden the scope of these provisions to force majeure events. Extraordinary events, such as extreme weather, flooding, fire, strikes, riots, invasion, war, famine, and government action (i.e., intervening events that take place beyond the control of ordinary commercial counter-parties) are generally included within the scope of force majeure events.
Force majeure clauses are typically construed with ordinary principles of contractual interpretation with regard to their precise wording. U.S. courts tend to interpret force majeure clauses narrowly. Courts typically find that only those events specifically defined under these provisions are sufficient to excuse a party’s non-performance. If the clause includes a catchall provision, courts often limit it to include occurrences “of the same kind or nature” as those listed in the clause.
Furthermore, U.S. courts typically require the non-performing party to demonstrate the unforeseeability of the alleged force majeure event and carries the burden of proving the event is the cause of its inability to satisfy its contractual obligations.
Whether the recent spread of the novel coronavirus (“COVID-19”) would trigger a force majeure clause, the issue will likely be determined on a case-by-case basis, making reference to the exact wording provided in the contract. If the definition of force majeure event were to specify “epidemics”, “pandemics”, “viral diseases”, or similar language, it will likely trigger the provision.
Alternatives for non-performance:
Doctrine of Frustration
In the absence of an applicable force majeure clause, parties might turn to the doctrine of Frustration to excuse their non-performance. Frustration of purpose occurs where an unforeseen event, not caused by either party, drastically alters the circumstances surrounding the contractual agreement and causes performance of the contract to be significantly different than the parties originally intended. Like force majeure provisions, the doctrine of Frustration is construed very narrowly and is often limited to “where a virtually cataclysmic, wholly unforeseeable event” renders the contract worthless to one of the parties.
Doctrine of Impossibility of Performance
U.S. courts have also recognized the doctrine of impossibility of performance as another basis by which a party lacking an applicable force majeure clause can seek to excuse non-performance. The impossibility doctrine applies where the “destruction of the subject matter of the contract or the means of performance” renders it objectively impossible for the parties to fulfill their contractual obligations. The impossibility must have resulted from an unforeseen event that the could not have “guarded against in the contract.” U.S. courts tend to apply the impossibility doctrine very narrowly, often reserving it for extreme circumstances.