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Force majeure clauses are typically overlooked in agreements as merely “boilerplate” language, however, subtle differences in the language can have significant effects on the parties. With the potential business disruptions caused by the current COVID-19 outbreak, many impacted service providers and vendors are rightfully concerned about their exposure. What their rights and obligations will be will depend on the “force majeure” clauses that can be found in the back of their agreements.
In general, a “force majeure” event is an act beyond a party’s reasonable control. “Force majeure” means “superior force” in Latin. A force majeure clause, therefore, is a contractual provision that excuses a party’s obligation to perform under an agreement if the circumstances giving rise to the failure are beyond the party’s control. Below are several examples of a force majeure clauses and how they may be construed in an emergency situation such as this. Clause 1: In the event either Party is delayed from performing any act required under this Agreement due to (i) flood, fire, earthquake or explosion; (ii) war, invasion, hostilities, terrorist threats or acts, riot or other civil unrest; (iii) government order or law; (iv) actions, embargoes or blockades in effect on or after the date of this Agreement; or (v) shortage of adequate power or transportation facilities, then performance of such act shall be extended for the reasonable period of such delay, and either Party shall be granted a reasonable period of time to perform after the cessation of the reason for the delay. Under this this first example, only an occurrence that is specifically stated in the clause would constitute a force majeure event. Thus, the event in question would have to be one of (i) through (v) to trigger this clause. Since a “pandemic” or “epidemic” is not specifically stated, a failure or delay caused by the COVID-19 pandemic probably would not be covered in this situation. Clause 2: In the event either Party is delayed from performing any act required under this Agreement due to, (i) acts of God; (ii) flood, fire, earthquake or explosion; (iii) war, invasion, hostilities, terrorist threats or acts, riot or other civil unrest; (iv) government order or law; (v) actions, embargoes or blockades in effect on or after the date of this Agreement; (vi) national or regional emergency; or (vii) shortage of adequate power or transportation facilities, then performance of such act shall be extended for the reasonable period of such delay, and either Party shall be granted a reasonable period of time to perform after the cessation of the reason for the delay. Clause 2 is better than Clause 1 because, while it does not specifically mention “pandemics” or “epidemics,” it does mention “acts of God” and “national or regional emergency.” These two categories could give you some leeway when it comes to a health emergency such as COVID-19. Of course, it would be better to specifically name “pandemics” or “epidemics” or even “health emergencies” to eliminate confusion but having some additional categories which could encompass a pandemic could be helpful. But what if you don’t list every possible situation that could lead to a force majeure? Clause 3 can help with that. Clause 3: In the event either Party is delayed from performing any act required under this Agreement due to (i) acts of God; (ii) flood, fire, earthquake or explosion; (iii) war, invasion, hostilities, terrorist threats or acts, riot or other civil unrest; (iv) government order or law; (v) actions, embargoes or blockades in effect on or after the date of this Agreement; (vi) national or regional emergency; (vii) shortage of adequate power or transportation facilities, except to the extent such failure was caused by the party invoking this Section, or (viii) due to any cause beyond the reasonable control of a Party (collectively, a “Force Majeure Event”), then performance of such act shall be extended for the reasonable period of such delay, and either Party shall be granted a reasonable period of time to perform after the cessation of the reason for the delay. Regardless for the excuse of the Force Majeure Event, if such Party is not able to perform within ninety (90) days after such event, the other Party may terminate the Agreement. Clause 3 contains the catch-all provision which allows the force majeure clause to be triggered for any cause “beyond the reasonable control of a Party.” Under such a definition, there is no need to name every single possible cause as the catch-all would cover causes that are “beyond the reasonable control of a Party.” Since pandemics and epidemics are “beyond the reasonable control of a Party,” disruptions caused by COVID-19 would likely be covered. Clause 3 further adds two additional points worth noting. First, this clause requires that the force majeure event cannot have been caused by the party invoking this Section. This makes sense because it would not be fair for the non-performing party to benefit from its negligence or poor planning that resulted in the force majeure event. While this is unlikely in the context of COVID-19, it is good practice to include such limitations in force majeure provisions. Second, Clause 3 allows the other party to terminate the agreement after ninety (90) days. This provides the other party the option to walk away from this Agreement and not be tied to a vendor who cannot provide services or supplies for an extended period of time. While a force majeure clause provides some flexibility to the non-performing party, it should also not force the other party to be stuck in a situation where it is not receiving the benefits of its contract. As seen from the above examples, force majeure clauses should not be treated as merely “boilerplate” provisions as small differences can have significant repercussions on the rights and obligations of each party. Force majeure provisions should therefore be reviewed carefully, with particular attention given to the potential causes that could trigger them.
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