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If your business has hit trouble because of the pandemic and you need guidance, the attorneys at G & G Law have assembled a toolkit of accessible, easy-to-digest information that answers many common questions we’ve received from our clients. You can read more about it and purchase it here.
The very present threat of COVID-19 is dominating our national and popular consciousness. Business owners, in addition to worrying about their own health, have to think about how they can keep operations running, keep cash flow up, keep paying their employees, etc. And as if that wasn’t enough, what about cancelled events, cancelled orders, cancelled reservations? How will their contracts be affected? What happens if contracts get cancelled or amended, halted or breached?
While all sectors are understandably concerned about the implications, we’ve gotten the most inquiries from our clients in the event industries (wedding vendors; event spaces; conferences; furniture rentals; etc.). Businesses who have Chinese products in their supply chain are also troubled.
The first place to look is Force Majeure clauses. They are typically thought of as boilerplate legalese, but they have a huge impact when they come up. Here’s an example of a typical Force Majeure clause:
Force Majeure. A party shall not be liable for any failure of or delay in the performance of this agreement for the period that such failure or delay is
- beyond the reasonable control of a party,
- materially affects the performance of any of its obligations under this agreement, and
- could not reasonably have been foreseen or provided against, but
will not be excused for failure or delay resulting from only general economic conditions or other general market effects.
This language encompasses far too much to be of use in an actual contract, in our opinion, but it cuts the legalese and communicates the core concept of Force Majeure: In case of apocalypse, you are forgiven your contractual obligations. Common triggers for a Force Majeure clause include:
- “Acts of God”: This usually includes natural disasters such as fires, tornadoes, floods, hurricanes, etc. If a concert venue burns down, you shouldn’t be punished for calling off the event.
- Invasion by a foreign power: Are hostile soldiers kicking down your door? Feel free to cancel the photo session you had booked.
- Riots: If it’s not safe to be on the streets, maybe that art walk you’d planned isn’t such a good idea.
- Etc.
Note that this does not include negligence, malfeasance, or inconvenience. Canceling an outdoor wedding because of ordinary rain, for instance, would not trigger Force Majeure.
The enforceability of Force Majeure depends on the specific factors listed and does not have Federal guidelines. In the end, the courts have the final say, so looking at a few case studies can guide our interpretation today:
AMERICAN BOOK COMPANY v. CONSOLIDATED GROUP OF COMPANIES, INC. and CHRIS HINN [1]
American Book Company argued that they shouldn’t have to pay for books that were delivered without a required certificate that they contained no lead, a new mandate by governmental action. The Court decided against American Book Company, ruling that governmental regulation is not a “force of nature, uncontrolled or uninfluenced by the power of man and without human intervention” and that they couldn’t see how it “was not anticipated such that it could support the defense of force majeure.”
TRINH v. CITIBANK, NA [2]
In 1975, CitiBank closed their Saigon branch when North Vietnamese forces threatened the city. Just before Saigon fell, CitiBank turned over all its cash to the government and ceased interest payments to its account holders. One of them sought recovery charges, CitiBank plead Force Majeure, and the Court sided against the institution. The decision to close its Saigon branch was deemed a “voluntary choice.”
RAW MATERIALS INC vs. MANFRED FORBERICH GMBH & CO [3]
Finally, a situation where the Court upholds a plea of Force Majeure. When Forbeich failed to deliver a shipment of railroad rails, Raw Materials sued. Because the shipment was delayed because an unseasonably early freeze coated the shipping route in ice, Forbeich invoked Force Majeure. The Court judged that the unusual weather qualified as “far from ordinary circumstances” and dismissed the plaintiff’s demand for damages.
Because the courts have so much discretion and judge each case on its own merits, it’s hard to find a “typical” interpretation. However, we can see some broad patterns. Courts trend towards narrow interpretations, only covering the events specifically delineated in the Force Majeure clause; if the extenuating circumstances can be anticipated, the clause will not be upheld; and the burden of proof lies heavily with the party invoking Force Majeure.
Considering all of these factors, pandemics like our current coronavirus wouldn’t typically be covered by a Force Majeure clause.
If the President issued an unexpected executive order banning gatherings of a certain size or imposed a strict curfew, or if COVID-19 -19 suddenly zombifies the infected, Force Majeure might be triggered.
Suggestions for Current Contracts Already Signed
I’m sure you’ve seen companies sending email updates about how they are addressing COVID-19 as to ease their customers’ and clients’ concerns. This may be a good option for you; you can assuage anxieties about how you clean as well as discuss any workplace policies you’ve instituted to minimize the spread of the virus. The update, if drafted correctly, would not be legally binding, freeing you from liability should something go awry regarding COVID-19 and your clients. If you decide to do this, we recommend using language about your “plans” to do each step. Do not use language promising or implying a promise to do the steps (i.e. don’t say you’ve “implemented a policy”) Keep any such updates or newsletters separate from contracts or contractual language.
If both parties have concerns, it may be useful to add an addendum to the contract regarding COVID-19 issues. This can ensure everyone is on the same page and reduce anxiety around the outbreak’s uncertain evolution. Any such addendum should be very specific to the businesses’ needs and limited to the service or product in question. What happens if either party cancels this specific event? Under what circumstances could an initial deposit be refunded? Etc. Also be clear on whose insurance covers what to prevent confusion and contention should the addendum become relevant.
Suggestions for Contracts Negotiated in the Near Future
Include a dedicated COVID-19 provision. We do not recommend updating the time-tested language in your Force Majeure clause (if you have one); at this point, it’s better to address specific COVID-19 concerns in a separate provision, drafted with an understanding of all the currently available information. Perhaps think about broadening the language to include “pandemics” in general, depending on the needs of the parties.
Suggestions for Future Contracts
Our team is of two minds about whether or not your established Force Majeure language should be expanded to include “pandemics” or “communicable diseases” or something. We wouldn’t make this change right now, but consider it. There will be another pandemic in the years ahead, though we don’t know its shape or its impact. It’s a tough call! Pandemics are slower-moving than the usual triggers for Force Majeure, like a tornado blowing down a building the day before it’s needed, but even the earliest omens can come too late if a contract is already signed.
One thing’s for sure: COVID-19 is the pits. We really feel for businesses during this tough time. Fortunately, here at G & G Law, we’ve always felt comfortable working remotely, and our virtual doors remain open. We’re available to help businesses navigate these stormy waters – reach out to ease your worries today.
