As the various levels of government disseminate new recommendations about closures, travel restrictions, and social distancing, clients want to know what they can do to protect themselves if they cannot keep their contractual bargains. It is important to bear in mind however that the relevant force majeure event need not be COVID-19 itself. Copyright 2009 to Present School of Government at the University of North Carolina. Governmental action needs consideration many of our clients are facing a situation where guidance has been given by the Government which affects their business, but there has been no regulation. [1] Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp & Paper Co., 1 S.C.R. The existence of the pandemic will not prevent businesses from entering into new contracts, but it should make us all think carefully about the wording of force majeure clauses. the party affected by the force majeure events) is excused from performance, (2) the definition of force majeure events, (3) the obligations of the affected party, and (4) the parties' remedies. When a force majeure clause exists, the courts duty is to interpret the clause in the light of events that gave rise to the dispute. Could St. Anne, through the exercise of reasonable skill, have found markets in which to trade? Constructor shall submit any request for equitable extensions of Contract Time in accordance with ARTICLE 8. The landlords sued for unpaid rent, and the retailers argued that they were excused from paying the rent, or even released from the lease altogether, because of a force majeure clause or, lacking that, the doctrines of impossibility or frustration. Parties should not assume that a future court will necessarily interpret a catchall phrase like act of God, natural disaster, or other similar causes as covering a pandemic. If a contract does not include a force majeure provision, it will be implied. The seller argues that it is impossible or impracticable to perform. A party embedded within a chain of contracts is involved must also consider whether to issue protective notices of force majeure under the linked contracts as a protective measure. Remote working and other steps such as adopting a clean team structure may be helpful in this regard. This clause will be applicable in addition to the force majeure clause, if necessary, due to the very specific situations related to any pandemic crisis, like the Covid-19 in 2020 and being eventually not covered by the force majeure clause. The facts of every single contract will need to be considered to ascertain whether the event actually was beyond a partys reasonable control. However, defendants do prevail sometimes. The China Council for The Promotion of International Trade has been issuing force majeure certificates to companies that claim they are unable to meet their contractual obligations to protect them from potential breach of contract claims by counterparties. A party affected by the COVID-19 outbreak should take steps to record and document the steps it is taking to prevent or mitigate the impact of the COVID-19 outbreak on its ability to perform its obligations under the contract. North Carolina courts generally have construed these doctrines narrowly. We are social distancing at home, working and occasionally watching a nature video or two on Netflix. Depending on the nature of the contract, it may be nearly impossible to adequately mitigate, of course, given the rapid changes that are taking place on a near daily basis. In the absence of an applicable force majeure clause, two common law defenses might be available to a contractor or vendor under North Carolina law: (1) impossibility of performance; and (2) frustration of purpose. The force majeure clause should generally only suspend the provision of goods or services for the period the event affects the supply. A party looking to make a force majeure claim should consider carefully how the force majeure event is framed, and the consequences that are said to flow from that event. The plaintiff sued the defendant for damages, and the defendant pleaded the force majeure event of an act of God as a defence. A highly likely scenario with COVID-19 would be the inability to perform a contract due to having to self-isolate an office or a team due to the outbreak of COVID-19 at the workplace. From March to April 2020, 22 million workers lost their jobs, causing the unemployment rate to soar from 3.5% to 14.7%. It is likely that clients will face similar issues during and after the COVID-19 crisis. Cyprus a flag of progress and quality. Force majeure is French for "superior force." As such, these provisions are meant to cover events traditionally deemed as "acts of God." General vs. specific delays It is certainly smart from a business perspective to approach these issues head-on. To similar effect, in CAI Rail, Inc. v. Badger Mining Corporation, 2021 WL 705880 (S.D.N.Y. Wording should be included such as pandemic, epidemic, outbreak, crisis or governmental action. Force majeure clauses often require the giving of notice as a condition precedent to trigger the operation of the clause. Attorneys and staff with authority over contracting matters should be alerted to the existence and effect of force majeure clauses. In the absence of an express force majeure provision within an English law contract, parties may be able to rely upon the doctrine of frustration. As the COVID-19 directives are published and the circumstances unfold, our team is fielding several unique questions asking us to consider how force majeure provisions in . at para. It is far from obvious why the court should transfer the risk from tenants to landlords in the absence of a contractual command to do so. That clause reads, in part, as follows: 7.11 If by reason of strikes, lockouts, governmental restrictions, acts of God, non-availability of labour or materials, unavoidable casualty, civil commotion, war, fire, hindering subsurface conditions existing on the site, extreme weather conditions (meaning weather conditions deviating from the norm established from Environment Canada records for the preceding five (5) year period) or, any other cause beyond the control of the tenant and not caused by its default or fact of commission or omission and not avoidable by exercise of reasonable effort or foresight, the tenant, in good faith and without default or neglect on its part, is prevented or delayed in the construction or completion of the building [].[6]. There are nonetheless some features common to most force majeure provisions, which we consider below. 2. Under PRC General Provisions of the Civil Law (promulgated in March 2017), force majeure is generally recognized as an excuse for not performing civil obligations. It is always in your clients best interests, however, to take reasonable steps to mitigate and to document those steps. Did the market become nonavailable because of something unexpected happening after the date the contract was signed? This paper was originally presented by the author at an Ontario Bar Association webinar entitled Force Majeure, Contract Cancellations, and Occupier's Liability, held on March 13, 2020. This is especially the case where the impact on the relying party was avoidable or where the only impact was to render an obligation more expensive to perform. A force majeure clause is a type of contractual provision that relieves a party's obligations under contract when circumstances beyond the party's control arise. Thus, it is essential for parties to write into their contracts how the losses should be allocated in the case of a pandemic or another force majeure event. Dec. 16, 2020), the plaintiff alleged breach of contract against an auction house who canceled the auction of the plaintiffs painting during the pandemic. In the case of my clients contract (cited above), the consequence of reliance is set out in some detail in the contract itself: (2) Subject to subsection (3), each of the parties shall be excused from the performance of any obligation hereunder to the extent that such obligation is hindered or prevented by reason of Force Majeure, for the period of the Force Majeure event, provided however that the Licensee shall be liable for payment of any and all Rent, services and food and beverage provided by the Board up to the date of the Force Majeure event. it becomes physically or commercially impossible to fulfil the contract, or transforms the obligation to perform into a radically different obligation from that undertaken initially. As is evidenced by the analysis in Atlantic Paper, whether an event qualifies under a force majeure clause depends on the facts of the case, the wording of the clause, and the obligation from which a party seeks excuse. Our recommendation is therefore that for contracts currently under negotiation the parties discuss and agree how this risk is to be dealt with under the contract and ensure that the drafting is clear and reflects that agreement. The court refused to permit Jones to rely on this force majeure clause. Jones relied on the force majeure clause in its contract with the Crown to excuse non-performance. Examples of causes beyond the control of Constructor include, but are not limited to, the following: (a) acts or omissions of Owner, Design Professional, or Others; (b) changes in the Work or the sequencing of the Work ordered by Owner, or arising from decision of Owner that impact the time of performance of the Work; (c) encountering Hazardous Materials, or concealed or unknown conditions; (d) delay authorized by Owner pending dispute resolution or suspension by Owner under 11.1; (e) transportation delays not reasonably foreseeable; (f) labor disputes not involving Constructor; (g) general labor disputes impacting the Project but not specifically related to the Worksite; (h) fire; (i) Terrorism; (j) epidemics; (k) adverse governmental conditions; (l) unavoidable accidents or circumstances; (m) adverse weather conditions not reasonably anticipated. force majeure means the occurrence of event (s) or circumstance (s) which could not have been foreseen at the time the contract was entered into, which prevents or impedes a party from performing one or more of its contractual obligations under the contract. In the case of the impossibility or impracticability doctrine, it is usually the seller who seeks to escape its obligation to manufacture, deliver, or transport goods. While the events listed in a force majeure clause vary from contract to contract, courts generally require that a force majeure event be both beyond the contracting parties' control and unforeseeable at the time the contract was signed. the affected party must have taken all reasonable steps to seek to avoid or mitigate the event or its consequences. In the case of the frustration doctrine, it is usually the buyer who seeks to escape its obligation to buy goods. To constitute a force majeure, it is likely that the language in the clause in question must explicitly capture an event like COVID-19 for example, by using language like pandemic, epidemic, or public health emergency. Pandemic-related disruptions of transportation, including commercial air travel, also created disputes between travelers and shippers, on the one hand, and carriers, on the other. Additionally, if a force majeure event occurs, a unit also might have a suspension or termination right. Fourth, and related, the problem of causation adds another wrinkle of complexity to drafting. These provisions are typically towards the end of a commercial contract and have become a common boilerplate provisions. T.D.) Force Majeure - Drafting to cover or exclude Covid-19 General Terms. Force Majeure Event with respect to a party means an event beyond the reasonable control of an affected party including: (c) public health . As the court set out in Atlantic Paper, these clauses excuse non-performance of a contractual obligation upon the occurrence of a specified, unforeseeable (or at least unpredictable) event or circumstance that is beyond the parties control. Enforcement of a force majeure clause requires that: (a) there be a causal link between the event and the impairment of contractual performance; and (b) there be a certain level of impairment to trigger the clause. By contrast, the doctrine of frustration is not available if the contract contains an express force majeure provision, since the provision will be regarded as the agreed allocation of risk between the parties. [4] In other words, when parties include a force majeure clause in a contract, the precise . According to Black's Law Dictionary, force majeure means "an event or effect that can be neither anticipated nor controlled; especially an unexpected event that prevents someone from doing or completing something that he or she had agreed or officially planned to do." When you and your client scrutinize the events that lead them to this point (and assess whether the pandemic is one of them or the exclusive cause), you should also assess whether they have any control over any of these events or reasons for non-performance. [2] events in tokyo this week safety keychain set tiktok law insider force majeure. The section discuses SARS as a force majeure event, and indicates that SARS killed 395 people as of May 1, 2003. "Force majeure" This French term means "superior force," which pretty much sums it upit's an act of God clause you'll see in pretty much every wedding contract you sign. If the force majeure event extends over a longer period, some provisions may entitle the parties to terminate the contract. If in doubt, it may be helpful to seek legal advice early in the process. Where the specified event is not listed in the force majeure clause, this silence means that the parties allocated the risk of the specified event to the relying party; in the case, the of Atlantic Paper, the non-availability of markets to St. Anne was its risk to bear. These cases typically pitted a party who had agreed to supply goods or services to another party who either no longer needed them or could not afford to pay for them because of the COVID-19 pandemic. Setting aside the determination of what the word failure means, which was addressed in the case, the words occasioned by or in consequence of are also crucial. In one, the meeting planner for an October event wanted to use the force majeure clause, saying it "was applicable because the economic realities caused by COVID-19 will prevent them from marketing their show, attracting sponsors, and bringing in attendees," Sommer Devlin said. Generally force majeure events are unavoidable events such as "acts of God," most notably weather conditions including hurricanes, tornadoes, floods, earthquakes, landslides, and wildfires, as well as certain man-made events like riots, wars, terrorism, explosions, labor strikes, and scarcity of energy supplies. 2022 School of Government at the University of North Carolina. In the case of COVID-19, this issue could arguably arise for clients who entered into contracts after it became reasonably likely that the pandemic would take root. Take the following example: Party A fails to supply goods to a customer, having shut its factory and stopped all production. Even if your force majeure clause covers COVID-19, your right to a refund depends on the clause's language. Frustration has a different (higher) standard than force majeure before it is triggered, and different implications for the contracting parties; primarily, the fact that a finding of frustration of contract brings the entire contract to an end rather than excuse a party from force majeure related obligations. What constitutes a reasonable mitigation measure is fact-specific and depends upon the nature and subject matter of the contract in question. After fourteen months, St. Anne advised Atlantic Paper that it would not accept any more secondary fibre and the latter sued for damages. FORCE MAJEURE: Neither party shall be deemed to be in default of its obligations hereunder if and so long as it is prevented from performing such obligations by an act of war, hostile foreign actions, nuclear explosion, earthquake, hurricane, tornado, or other catastrophic natural event or act of God. The provision also uses the term for the period of the force majeure event, which is itself currently unknown and certainly a phrase primed for disagreement. In order to be prepared for different scenarios as the situation continues to unfold, we recommend that clients consider taking the following proactive steps. For example, some contracts will provide for the maintenance of a continuity plan or a disaster recovery plan, which will impose additional requirements on the relying party to mitigate against the occurrence of a force majeure event. The project, conceived in ephemeral hopes and not the harsh realities of the market place, resulted in a failure for which St. Anne and not changes in the market for corrugating medium during the period April 10, 1970 to June 9, 1971 must be held accountable.[3]. Short-term measures such as home-working may be necessary. The answer to this question turns, in large part, on the exact wording of the clause itself. [13] Naylor Group Inc. v. Ellis-Don Construction Ltd. (2001), 2001 CarswellOnt 3340 (S.C.C.). A clause that releases or partially releases a party from performance if some measure of its business (such as revenues) clearly indicates that it cannot operate would be more easily enforced and would add predictability to the relationship. 1 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. Shearman & Sterling 2022 | Attorney Advertising, Committee on Foreign Investment in the United States (CFIUS), Financial Institutions Advisory & Financial Regulatory, Environmental, Social and Governance (ESG), EU General Data Protection Regulation (GDPR), Future of Financial Services Regulation in the UK, Global Compliance & Anticorruption (FCPA), Special Economic Zone and Regulatory Drafting. Thus, the date on which the contract was effective or signed will be an important consideration. I rely on this contract throughout this paper as a useful and relatable example: (1) As used in this section, Force Majeure means any event beyond the control of a the Licensor or the Licensee, as the case may be (a Party) (other than as a result of financial incapacity or financial inability of such Party, which, for greater certainty, shall not be considered an event beyond the control of a Party) and not caused by an act or omission of such Party, including, but not limited to: (i) a lack or an inability to obtain materials, goods, equipment, services, utilities or labour; (ii) any new statute, law or order-in-council or any regulation or order or amendment thereto passed or made pursuant thereto; (iii) an inability to obtain any licence, permit, permission or authority from an entity; (iv) a strike, labour dispute, work stoppage, lockout, slow-down or other combined action of workers; (v) earthquake, flood, fire or other casualty; (vi) an act of terrorism, civil commotion, war, invasion, embargo, insurrection, rebellion, sabotage, riot, violence, sabotage by other than a Party, malicious mischief by other than a Party, act of public enemy, or extortion; (vii) any epidemic, as identified by the Medical Officer of Health for the City of Toronto, and, and which shall cause such Party to be unable to fulfil or to be delayed or restricted in the fulfilment of any obligation hereunder. At its simplest parties may agree to refer to the Coronavirus COVID-19 outbreak as being a force majeure event or agree to exclude it entirely depending entirely upon what the contract is for. The contract contained a termination provision stating that [i]n the event that the auction is postponed for circumstances beyond our or your reasonable control, including, without limitation, as a result of natural disaster, fire, flood, general strike, war, armed conflict, terrorist attack or nuclear or chemical contamination, the auction house had the right to terminate this Agreement with immediate effect. The court rejected the plaintiffs argument that the clause did not apply because it did not specifically mention pandemics, holding that the pandemic counted as a natural disaster.. Even where there is no formal requirement to provide evidence or documentation, relying parties should document how COVID-19 has affected their ability to meet their contractual obligations as well as their efforts to avoid and mitigate its impact. A party involved in back-to-back contracts or a network of interrelated contracts will need to take a strategic approach, taking into account the overall impact of the claim for force majeure on its obligations under the related contracts. This blog post is published and posted online by the School of Government to address issues of interest to government officials. Keep detailed records of vendor performance during this time. Suppose a supplier shuts down its factory because of a pandemic, and as a result is unable to perform. Determine whether insurances, such as business interruption insurance or force majeure insurance, may cover any of the expected losses. The Licensee hereby waives any claims for damages or compensation from Licensor on account of such termination except as specifically provided. While a financial panic was narrowly averted by the Fed in March 2020, and an eviction moratorium and government transfers prevented widespread suffering, the economic turmoil played havoc with business relationships. 2427356 VAT 321572722, Registered address: 188 Fleet Street, London, EC4A 2AG. The current pandemic may continue in some places, and even if it does not, future pandemics may occur. In March of 2020, as the COVID-19 pandemic and the consequent government shutdown orders forced business closures and event cancellations across the United States, we provided a four-step checklist and flowchart on evaluating contracts' force majeure provisions in order to aid contracting parties in understanding their options. [4] 1994 CarswellPEI 38 (P.E.I. The contract may additionally require the notice to state the anticipated consequences and duration of the force majeure event. Naturally, litigation followed. The superior forces commonly listed in contracts include acts of God, terrorism, and natural disastersall occurrences that are generally thought to be unexpected and beyond the control of the parties at the time that the contract is made. The concept of force majeure refers to when a contract can no longer be fully executed or adhered to because of extraordinary or extreme circumstances, often referred to as "acts of God". Understanding this is key to navigating a path through the current and future consequences of the COVID-19 outbreak and to future proof your contracts. As with any anticipated or potential breach, once a client knows their risk, they are usually wise to approach the other party to see if some partial performance or revised contractual terms will avoid a complete breach or failure to perform. In that case, there will be no litigation. Rudolph v. United Airlines Holdings, Inc., 2021 WL 534669 (N.D. Ill. Feb. 12, 2021), involved a transaction we all can relate to. A force majeure provision typically relieves a party from what would otherwise be a breach of contracti.e. While contracting activity may decrease overall in the coming months, local governments will continue to enter into contracts and purchase orders. Most force majeure provisions contain catch-all language in respect of events which are outside the reasonable control of the party affected. Those of us who, like me, lack French fluency, force majeure clause the. ( cited above ) is also elucidating: force majeure clauses to address these risks more complex drafting would required! The terms of the unexpected, something beyond reasonable human foresight and skill. [ 1 ] supporting or! General matter, courts may be reluctant to recognize COVID-19 as a force majeure. 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