Client Memorandum – Force Majeure Clauses
March 30, 2020
This Update covers force majeure clauses in contracts. The COVID-19 outbreak affects businesses in every sector. Given the significant disruptions to business contracts as a result of this unprecedented pandemic, many businesses are looking for ways to avoid their contractual obligations. This Update discusses one such option: the force majeure clause.
What is a “Force Majeure” clause?
Many contracts contain a force majeure clause. These provisions may excuse the parties from their contractual obligations if an unforeseeable and extraordinary event or “Act of God” prevents one or both parties from performing under the contract. These clauses allocate the risks if an unavoidable event makes it impossible for one party (or both) to satisfy their contractual duties. In other words, force majeure clauses may release a party from further performance under the contract.
If your contract does not include a force majeure clause, the common law doctrines of impossibility or impracticability may provide similar relief. Depending on the laws of the particular jurisdiction, these doctrines may excuse the parties from their contractual obligations when supervening circumstances make performance impossible or impracticable.
Invoking Force Majeure Clauses
Because force majeure clauses are contract provisions, the specific contractual language and the governing law in the particular jurisdiction determine whether the clause applies in the particular circumstances. Force majeure clauses vary from contract to contract. For example, some clauses specifically describe qualifying events, while others are silent. Many force majeure clauses require that the party seeking to exercise the clause provide prompt written notice to the other parties to the contract. If a party fails to provide prompt written notice, that party may waive its right to invoke the force majeure provision. Depending on the specific language and the laws of the jurisdiction, a party may be required to establish that performance is impossible, while in other cases, a party may need to establish that performance is only impracticable. Most contracts and courts require that the party invoking a force majeure clause take reasonable steps to mitigate damages. Because the language varies from contract to contract, businesses need to carefully review force majeure clauses to determine their legal rights.
Force Majeure Clauses and the COVID-19 Pandemic
A broad force majeure clause may cover the COVID-19 pandemic. Force majeure clauses are particularly important now and in the coming weeks and months as businesses struggle with the fallout from the COVID-19 pandemic, including interrupted business operations, supply chain disruption, business closures, and travel restrictions.
Some force majeure clauses specifically include “pandemics” or “epidemics” as qualifying events. Even if the clauses don’t include those specific references, COVID-19 still may qualify under many force majeure clauses because the inability to perform is the result of government-mandated travel bans, quarantines, and business closures.
The specific language of the contract and applicable law will govern the outcome. It’s important that any business considering asserting a force majeure clause strictly comply with the technical requirements of the contract and the applicable laws of the jurisdiction.
We’re happy to work with you to evaluate your contracts and determine whether you can benefit from a force majeure clause in one of your business contracts. Please call or email us with your questions about your options when you or another party is considering avoiding contractual obligations. We know these are difficult times – we’re here to help in any way we can.
Take care and stay safe.
Kell, Alterman & Runstein, L.L.P.
520 SW Yamhill Street, Suite 600
Portland, OR 97204
Telephone (503) 222-3531