COVID-19 and Force Majeure Clauses

March 23, 2020

A "force majeure" clause (French for "superior force") is a contract provision that is included in almost every contract even if you didn’t know it was there. The force majeure relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. The COVID-19 pandemic is something that has forced the performance of many contracts to become inadvisable, commercially impracticable, illegal, or impossible, but is a party to your contract able to invoke the force majeure clause in your contract?

Unfortunately, the answer is maybe. There is no such thing as a “standard” force majeure clause and you need to look at the exact language included in your contract. That is because the force majeure clause is subject to negotiation when entering into a contract. Further the Texas Court’s have now given more emphasis to the exact language of the clause.[1] There are four parts of the force majeure clause in your contract that need to be addressed: (1) the list of specific events for force majeure; (2) the standard for invoking the force majeure; (3) the catchall provisions; and (4) the notice requirements.

The list of specific events can be anything for example it could be “fire, flood, storm, Act of God, governmental authority, riot, terroristic threats or acts, strike, or war.” As you can see it is a variety of different events and depending on the industry you are in there can be more specifically tailored ones in your force majeure clause. The two most important specific events that are more commonly listed in force majeure clauses are “Act of God” and “governmental authority or action.” The best case scenario for you is if your contract has “governmental authority or action” listed as a specific event. With all of the presidential, gubernatorial, and mayoral orders banning gatherings of more than ten, closing down restaurants, bars, theaters, and gyms or in some extreme cases a shut in place you can argue that governmental action made your contract impossible or even illegal to perform and the force majeure clause could be invoked.

If your force majeure clause does not contain a “governmental authority or action” it is more than likely to contain “Act of God” language. You need to be careful when relying on “Act of God.” Act of God is defined by the Texas Pattern Jury Charge as “caused directly and exclusively by the violence of nature without human intervention or cause” this language does not bode well for making the argument that COVID-19 is an “Act of God”. As humans contributed to the spread and the actual reason for many of these contracts becoming impossible or illegal to perform was the actions taken by our government and not from COVID-19 itself. For example were international flights made impossible because of COVID-19 or because the United States Government banned international travel.

Next is the catchall provisions, which is the “any other cause” or “any other similar cause” section of the force majeure clause. The Texas court’s have said that you cannot rely on a catchall cause for a foreseeable event.[2] The courts will be deciding these cases with the knowledge they have gained from this experience like all of us, so it is more likely they will be more lenient in the reading of these force majeure clauses as it could not have been foreseeable that a global pandemic like this would occur.

Finally, if you are concerned that your contract may be affected by a force majeure clause you need to look at the notice requirements listed in the clause, which may say “within X number of days” or “as soon as practicable” or even “immediately” and be sure to put the other party on notice within the time frame specified. It is important that you carefully read the Notice requirement listed in the force majeure clause in your contract because “failure to provide notice precludes reliance on the force majeure clause” Advanced Seismic Tech., Inc. v. M/V Fortitude, 326 F.Supp.3d 330, 336-37 (S.D. Tex. 2018) (failure to provide immediate notice precludes reliance on force majeure clause).

Hawkins Parnell & Young's national team continues to monitor the evolving COVID-19 situation in the United States. We are actively advising clients around the country on the rapidly emerging legislation and regulation impacting their business. Contact our team for assistance with a contract affected by force majeure clauses.

 

[1] Zurich Am. Ins. Co. v. Hunt Petrol.(AEC), Inc. , 157 S.W.3d 462, 466 (Tex. App.—Houston [14th Dist.] 2004, no pet.) and Sun Operating Ltd. P'ship v. Holt, 984 S.W.2d 277, 282-83 (Tex.App.-Amarillo 1998, pet. denied).

[2] TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176 (Tex. App. 2018) and Air Lines v. McDonnell Douglas Corp., 532 F.2d 957 (5th Cir. 1976).