Welcome to a New World Where Force Majeure Provisions Will be Six Paragraphs or More

May 5, 2020

Since COVID-19 barged unexpectedly into our lives, the question has been asked repeatedly whether the existence of the pandemic – and the related "shut downs" by state and local governments – automatically extends the time that an individual or a party to a contract has in order to perform a required act (like pay a bill) and, if there is relief, is it automatic, must it be asked for or affirmatively asserted and is the relief granted (if any) penalty-free. The answer, regrettably, in most cases, is "it depends."

To be sure, there are government actions that grant automatic relief (for example, the recently issued Treasury Notice 2020-23, declaring extensions of time to file tax returns and to pay taxes). Some jurisdictions have enacted laws that limit or prohibit evictions for nonpayment of rent or the commencement of mortgage foreclosure for those not paying their mortgage indebtedness. And, lawyers throughout the country are reviewing contracts they drafted and/or their clients signed, searching for "wiggle room" in the absence of specific controlling text.

Diving into the murky waters of force majeure provisions, we are again reminded that "words matter." Some force majeure provisions list specific events like war, fire, flood, hurricane and strikes. Some speak more generally of labor shortages and government actions. Not many (at least that this author has read) specifically mention a health crisis, let alone "pandemics." Immediately, the legally-trained mind asks whether the absence of a precise word in a series of acts which result in relief means the unmentioned act/event is excluded. Does something in that context need to be expressly mentioned to be included? Or does the long (but not necessarily exhaustive) list imply that other similar events are automatically included by implication?

Often, the list of examples is prefaced by the clause "including, but not limited to…" Shouldn’t that phrase open the door to include more acts/events similar or related in nature or effect as the itemized ones? And what about provisions which contain the words ". . . other events beyond the reasonable control of . . ."? What if the word "reasonable" is not included to modify “control?" With every word added or omitted (intentionally or otherwise), a host of other questions erupt. And here’s the conundrum:  what do lawyers typically do when their words are not crystal clear is – they add more words!

Decades ago, arbitration provisions were often a simple statement that if parties to a contract couldn’t agree on how to resolve a dispute, they would submit to an independent “decider.” What happened next was a tsunami of amplifications – what kind of arbitration (single arbitrator or more), what rules apply, who pays for the arbitration, is the decision final, is it judicially reviewable . . . And of course, the legal principles respecting arbitration and the foregoing may vary state to state, which leads inexorably to "choice of law" provisions.

You can be sure that force majeure provisions will expand, just as arbitration provisions did. Already, I am recommending a provision that a party seeking force majeure relief must invoke the provision by written notice to the counterparty in a timely manner (approximate to the occurrence and the determination of the need for relief resulting therefrom), set forth the precise nature of the event, explain the effect it has had/will have on performance, describe explicitly how much relief is needed and for how long. All of that should be coupled by the party wanting relief including an offer to perform within a reasonable time period following the end of the disruptive event. Meanwhile, the receiving party will be deemed to accept an assertion that a force majeure event has occurred unless it disputes a claim in writing within a reasonable period of time.

Not everyone looking for an extension, a postponement or nullification relief has the benefit of a written provision to guide them. For those stuck with legal documents that have no force majeure provision, there is always the doctrine of "impossibility of performance," which is a bedrock legal principle, and, if applicable, may excuse (not just delay) performance. In some jurisdictions, the doctrine of "impossibility of performance" is codified, either separately or as part of a state’s version of the Uniform Commercial Code. And once again, the existence of the doctrine as an affirmative defense to enforcement of a legal obligation and how it is applied varies from state to state.

Be aware that there already exists a plethora of cases that discuss force majeure in the context of the foreseeability of the event claimed to be the “force majeure” circumstance. Just imagine the arguments the legal community could foster if the gravamen for relief is determined by whether "we" (the country as a whole in an expansive context or the parties to a specific contract in a more limited context) could have reasonably anticipated what has befallen us?

Remember, even the key word "impossible," can be parsed. In most jurisdictions that allow the impossibility-of-performance defense, “impossible” means not capable of being done, as contrasted with inconvenient or onerous or costly (e.g., more expensive than anticipated). Thus, if the requisite act is capable of being performed, then absent a contractual provision which provides relief, the defense is inapplicable, and no relief is (nor should be) available.

On the other hand, some things truly are "impossible." Think of a contract to ship a particular object of art when the object itself is destroyed and no longer exists. Can the shipper be liable to deliver something which no longer exists? I think we can all agree on that one. 

Finally, before heads explode with all the legal mumbo jumbo, ask those looking for advice whether they thought of calling the other side and saying, "I am having a problem doing what we had agreed to do because of the virus . . . I am sure you are having your problems, too. How can we work this out so we each get basically what we wanted to happen with neither of us getting hurt? We are all in this together."

No lawyer, no legal memorandum on principles with jargon or legalese in their names, just a person-to-person chat. You might just be surprised how often that approach works.

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