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Monday, April 20, 2020

Corporate Client Alert: Coronavirus and Force Majeure Clauses in Contracts

Florida business owners have a challenging road ahead. In addition to navigating the web of federal tax incentives for the livelihood of their business, owners must consider their existing contractual obligations to third parties and the obligations of those third parties to them. One issue that our clients have recently raised is whether their contractual obligations can be cancelled based on the COVID-19 outbreak, supply chain interruptions, and local government action that requires all nonessential businesses to close.

Contractual agreements usually contain a force majeure provision that allows for cancellation or delays in performance under limited unforeseen circumstances. A force majeure (French for "superior force") provision must be contractual and cannot be implied by the parties. A force majeure provision within a contract "allocates the risk of loss if performance becomes impossible or impracticable, especially as a result of an event or effect that the parties could not have anticipated or controlled." Black's Law Dictionary, 718 (11th ed. 2019). Typical events considered to be force majeure events include strikes, lockouts, acts of God, acts of war, civil commotion, governmental action, or other similar unforeseeable circumstances.

Published decisions from the Florida Appellate Courts on the applicability of force majeure clauses is limited in Florida. Force majeure provisions are not uniform, and variations in wording can be important. Most courts will interpret a force majeure clause narrowly and therefore the clause may encompass only events specified in the force majeure provision of the contract. Force majeure clauses will generally only excuse a party's nonperformance "if the event that caused the party's nonperformance is specifically identified." In re Cablevision Consumer Litigation, 864 F.Supp, 2d 258, 264 (E.D.N.Y., 2012) (citing Reade v. Stoneybrook Realty, LLC, 63 A. D.3d 433, 434 (N.Y. App. Div. 2009).

Businesses currently negotiating contracts should consider adding language that specifically includes a provision referring to the unforeseeable long-term impact of the ongoing COVID-19 pandemic, as well as future pandemics and epidemics, rather than relying on general force majeure language. Further, there may be an opportunity to amend an existing contract to include relevant force majeure language that could protect against further unforeseen impacts of the COVID-19 crisis. Businesses should review their existing agreements carefully to see if this is possible.
Fowler White's Corporate Practice Group is here to assist business clients with the legal issues raised by the extraordinary situation we are going through right now. 

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