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Force Majeure Analysis Speaker(S) Unedited transcript of Force Majeure Analysis from How to Renegotiate Contracts in the COVID-19 World Recorded 07/30/2020 Speaker(s) Frank S. Maniscalco, Esq., Advocate Mercantile LLC, Boston Sara Lyons Myer, Advocate Mercantile LLC, Philadelphia >>: But I'm going fast, so we'll probably get to it before you think. All right. So now, here's our pre-COVID force majeure clause. So first things first, am I covered by the force majeure? Yes, it is very possible that you're not covered by the force majeure especially in a leasing environment. In fact, some of the clients that hit us during this time were saying, do I have to pay rent? And I looked at several leases and in most of them, the landlord was excused from providing the space to - place to work or live, but the tenant was not relieved with a force majeure event. The problem was, they just signed whatever they were given, and they did not negotiate. Now, these were business-to-business leases, so they have the obligation to negotiate and to protect their rights. The courts, as they said even in 9/11, not only do you have the obligation negotiate, but if you make an oversight or don't think it through or if you get something that's just about their terrorist act first act of war - tough. You've got to get it right. So the first thing we did is we popped open our contracts. We looked for limitation of liability. We looked for consequential damages. We looked for exclusive remedy. We understand what our general damages are going to be should something go wrong. But now, we're going to look for force majeure and try to get out of any obligation under the contract. And that's what force majeure is intended to do. So let's move on to this stuff. And this is where we will start to go into the analysis of force majeure, and I will pass over to Sara. >>: OK, great. So unlike some of the civil law jurisdictions, the United States does not have any codified force majeure provisions in a statute. © MCLE, Inc. All rights reserved Therefore, the potential application of force majeure is going to be dictated by the specific context and the fact, and it's going to be controlled by the specific language in the contract as that's negotiated by the parties. And there are many cases - lots of case law surrounding force majeure. And when you start looking at the case law, three key elements in court application becomes clear, and that's what we're going to go through today. I thought that'd be most helpful. And then three key elements of the court application is, what constitutes a force majeure event? What conditions or obligation, if any, must be met or performed by declaring party? And then, what remedies are available? Or what consequences apply upon the occurrence of an event of force majeure? So looking at element one, let's talk about what constitutes a force majeure event according to case law. A force majeure event is an event that is outside of the reasonable control of the party, and that prevents the party from performing its obligations under a contract. Now, most force majeure clauses will contain broad descriptions of events. Like, the classic one is acts of God. That's obviously very broad. Like, act of government, natural disasters. Even when you start describing events as an endemic or - epidemic rather or a natural catastrophe, that's still a pretty broad description of the event. However, there is good reason to get more specific than that when you outline what constitutes a force majeure event in your clause. As Frank was talking about when he told us about that 9/11 case, the courts - they're just not very kind to you when you don't specify what you mean by force majeure event. The express provisions of the clause usually do prevail. Sometimes, the broader description will work in your favor. So for example, if you're a party wishing to invoke a force majeure clause because it's COVID-19, and your clauses pandemic, which is pretty broad, as one of the unforeseen events, you're in good shape. But as we can see in that case, when you start to narrow down the description, then the clause may in fact become less effective. So Frank, let's take a look to see what we've got in our clause. Oh, you're muted. >>: Just told me. All right. So looking at our standard clause that we were using, that our clients had, we did, in fact, list out different events. Now, luckily - first of all, we learned from 9/11. Come on. We learned from 9/11, and we did in fact have terrorist acts specifically listed now, but did we foresee the event that was happening? Well, we put epidemics. So that is © MCLE, Inc. All rights reserved something that - we feel like we do have some protection, and we will take a look and we'll do an analysis of whether we have the proper protection under that first element of what constitutes a force majeure. So we have epidemic, but COVID is a pandemic. So the question is, are we covered? Well, I don't know. I didn't know, but now I feel like I do. So what I did is I went to what I would feel is the definitive source that any court or judge would look to as what is really an epidemic and what is really a pandemic. And so I went to the Center for Disease Control, and they, again - very shocked at how quick and how good the government is. They had lessons on epidemiology for anybody. So you can go to this webpage, and you can see various charts and then you can even take a quiz to test your knowledge of whether you know the difference between a sporadic disease, an endemic, a hyperendemic, pandemic, epidemic. So based on spending a little time on the CDC website, I took a look at it, and I basically extracted what they said into more commonly used definitions. And you'll see these used pretty much throughout the web as people were talking about this. All right. So we have epidemic. Epidemic is an occurrence of an infection - an infective disease among particular - I mean we have epidemic. It's occurrence of an infectious disease within a region. Right? So we are covered. So catch-alls we'll get to as well. So someone else just asked what about catch-alls like - or any other cause beyond the parties you have under control. First of all, I love the excitement around force majeure. We will definitely get to that, but we're still on just the list. Let's get to the first one, and then we'll get to the catch-all. All right. So we have an epidemic, and we're wondering if the infectious disease for particular - I mean, epidemic which is occurrence of infectious disease within a region. But we're living in a pandemic world right now. So the question is, does our force majeure cover us? Will the 9/11 courts be so strict as to say sorry. Just like where they said terrorist act does not pass as a war, pandemic and epidemic are not the same. But if you Venn diagram out what the CDC is saying about these different clauses - there we go - you can see that pandemic is sort of the superset - well, not sort of, it is the superset. It is the largest scale disease infection that hits the world or hits a country. Endemic, which I actually didn't really understand quite so well, is - it hits a particular people. So it's only going to hit people who have blue eyes as opposed to brown eyes, but if you're in the business of making blue-eyed sunglasses and you could only have blue eyed people work on it, then you © MCLE, Inc. All rights reserved are affected. So in a pandemic, it would actually include epidemics. So I think our clause - if we had epidemic and pandemic, we would be covered - I mean, endemic and pandemic. Now, what about epidemic? So an epidemic overlaps with endemic, and it is basically an infectious disease within a region. Now, if we have a pandemic, therefore, the entire United States, the entire world is being affected by COVID, I think it's pretty obvious to say that we also have an epidemic because my region is affected. So Massachusetts is affected. So I feel like since we have epidemic listed, and we're living in a pandemic, it would be really hard stretch for the courts to say no, you're in a pandemic not an epidemic. But I can honestly argue, well, we're also an epidemic because it's in my region. Now, the other thing is there's a smaller subset within epidemic which is an outbreak, and that would be, say, Boston has an outbreak, but it doesn't affect Massachusetts. So in that situation, in this - if my force majeure said outbreak, I think we would be - in this situation, if the outbreak occurred and I had epidemic in my force majeure clause, I would still say I was covered. However, if I was trying to use an outbreak as the force majeure, and it never raised to the level of an epidemic and my force majeure clause says epidemic, I would not be covered.
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