06-18-2020 | Blogs, Business Transactions

Invoking or Defending Against Force Majeure: How Long Will COVID Excuse Non-performance?

By: BrownWinick


force majeure

 

Though COVID-19 remains an active threat across the nation, many communities have confronted the delicate task of reopening amidst the health crisis. As the nation emerges from hibernation, businesses have asked—how much longer can parties to a contract invoke force majeure as a result of the pandemic to excuse its performance of the contract? This is a question to consider for all players in the supply chain, including manufacturers, distributors, retailers, and owners of real estate.

A force majeure clause generally excuses performance of a contract when events beyond the control of the parties intervene to make performance impossible or impractical, depending on the wording of the contract or applicable governing law. Regarding the pandemic, timing is the key element. To claim force majeure, the scenario must fall under the terms of the force majeure clause in the contract, or a party must show that performance is truly impossible or impractical. For example, when a state prohibits gatherings of 10 or more people, contracts concerning events became largely impossible to perform. This was the case with Comic Con Northeast, scheduled for March 2020 in Boston. The host cancelled the event under the force majeure provision of the contract and requested that the third-party vendor, GrowTix, originally contracted to process ticket sales, refund the purchasers. GrowTix’s refusal resulted in an ongoing lawsuit, one of many that is likely to occur this summer and fall.

As restrictions ease or expire, it will become more difficult to excuse performance of a contract under contractual or common law force majeure. In Iowa, mass gatherings and events are generally now permitted to occur provided that the participants maintain social distance and the host takes protective measures by extensively cleaning and disinfecting the space. Because Iowa’s guidelines generally allow business to resume, a party looking to claim that performance is impossible (or impracticable) will have a tougher argument for non-compliance. Federal guidelines for avoiding infection may provide alternative support for non-performance. Federal guidelines still heavily caution against extensive interaction with others. Even so, the CDC does not suggest quarantining for those who have no symptoms and have not been in contact with others showing symptoms, and largely permits people to go about their daily routine, albeit with additional precautions.

Finally, whether a party can successfully rely on force majeure as a result of the pandemic to excuse non-performance of a contract is an intensely fact-specific inquiry. If you are contemplating breaking or enforcing a contract, reach out to a BrownWinick attorney to analyze your contract and governing law to determine whether non-performance is excusable.