Has Your Business Reviewed Its Force Majeure Clauses?

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Has Your Business Reviewed Its Force Majeure Clauses? By Richard M. Scherer, Jr. March 24, 2020 | CLIENT ALERTS As a result of the ongoing COVID-19 pandemic, CNN reported on March 24, 2020, that 13 states and 16 municipalities, including the nation’s three largest cities (Chicago, New York, and Los Angeles), have ordered approximately 45% of the U.S. population to stay home. These new realities are making it nearly impossible for many businesses to live up to the terms of their agreements to timely manufacture, distribute, or sell their products. In light of these fast-changing circumstances, many clients are reviewing force majeure clauses in their contracts for the very first time. Rarely used, force majeure clauses are contractual provisions that excuse a party’s non-performance due to “acts of God” or other extraordinary and unforeseen events out of the control of the contracting parties. As the COVID-19 pandemic continues to disrupt ongoing business operations, Lippes Mathis is urging clients to take proactive steps and review these provisions before operations are disrupted further. A company’s ability to utilize a force majeure clause is dependent on the contractual language itself and the facts relevant to the particular agreement and businesses involved. However, many force majeure provisions require the party seeking to excuse its non-performance to take affirmative steps to terminate the agreement by a date certain. Thus, absent prompt action, a party may waive the ability to utilize a contract’s force majeure clause. Finally, given that courts will often narrowly construe force majeure provisions and the enforcement of any such provision can be dependent on the foreseeability of the risk, companies should ensure that during the ongoing COVID-19 pandemic, new contracts properly address the continued threat to businesses operations. Similarly, if your company does not have a force majeure clause in its contracts, these clauses should be immediately added and should explicitly address pandemics and government actions resulting from a pandemic. Please contact Richard M. Scherer, Jr. ([email protected]) with any questions regarding these issues or any other business disputes you may be facing as a result of the ongoing COVID-19 pandemic. ALBANY | 54 State Street, Suite 1001 • Albany, NY 12207 • 518.462.0110 BUFFALO | 50 Fountain Plaza, Suite 1700 • Buffalo, NY 14202 • 716.853.5100 CHICAGO | 332 S. Michigan Ave., 9th Floor • Chicago, IL 60604 • 872.254.5500 GREATER TORONTO AREA (PRACTICE FOCUSED ON U.S. LAW) | 1100 Burloak Drive, Suite 300 • Burlington, ON L7L 6B2 • 905.319.8964 JACKSONVILLE | 10151 Deerwood Park Blvd. , Bldg. 300, Suite 300 • Jacksonville, FL 32256 • 904.660.0020 NEW YORK CITY | 477 Madison Avenue, 6th Floor • New York City, NY 10022 • 646.673.8633 WASHINGTON, D.C. | 1900 K Street, NW, Suite 730 • Washington, DC 20006 • 202.888.7610 Attorney Advertising. Prior results do not guarantee a future or similar outcome..

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A Force Majeure Event?
COVID-19: A FORCE MAJEURE EVENT? Following the outbreak of the novel coronavirus and the consequential surveillance and controls introduced by a number of governments including the Luxembourg government, it may become essential to determine whether these events may be considered as force majeure events under Luxembourg law. Following the outbreak of the novel coronavirus, one question arising with regard to contracts is whether this outbreak and its consequences, especially also taking into account the measures taken by different governments, including amongst others confinement measures, closure of the borders, possible closure of companies, etc. - may be considered as a force majeure event. This may be envisaged from two perspectives. Firstly, there may be a force majeure clause in a given agreement. Such a clause is normally used to describe a contractual term by which one or both of the parties is entitled to suspend performance of its affected obligations or to claim an extension of time for performance, following a specified event or events beyond its control. It may also entitle termination of the contract, usually if it exceeds a specified duration. Whether or not the outbreak of the novel coronavirus will constitute force majeure in a contract is very much a case of interpretation of the relevant wording in the contract, and such clauses would need to be analysed in detail. Secondly, according to general Luxembourg civil law principles, a force majeure event may be raised by a party responsible of having breached its contractual obligations in order to be discharged from its liability. According to Luxembourg case law, a force majeure event has to be (i) external to the liable party, (ii) unpredictable and (iii) irresistible.
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