COMMENTARY: COVID 19 may qualify as a force majeure event.
force majeure, noun
1: superior or insuperable force;
2: an event (as war, labor strike, or extreme weather) or effect that cannot be reasonably anticipated or controlled – compare ACT OF GOD, INEVITABLE ACCIDENT.
From French, superior force
Wanting your deposit back on a wedding venue or entertainment center?
COVID 19 may qualify as a force majeure event.
Is the pandemic an “Act of God?” How do contracts with “force majeure” provisions apply today, particularly in the hospitality, entertainment and sports sectors?
Interpretations can vary, sometimes benefiting one contracting party over the other. The force majeure clause may (or may not), excuse and/or refund payments that have been made in advance, due to an uncontrollable event that makes the contractually required performance impossible.
For example, a contract for a wedding venue may contain a provision that states: “If a force majeure event occurs that renders the wedding facilities unusable, the contract will be terminated and neither party will be liable to the other. Force majeure events include, but are not limited to, tornados, earthquakes, fires, hurricanes, wind, flood, or any other event that is beyond the control of the parties.” (Note: There is no reference to a pandemic.) Such legal provisions are useful in avoiding a breach of contract because contractual obligations are eliminated in the wake of a force majeure event.
Relatively speaking, force majeure is seldom invoked as a method of excusing breach of contract. However, this is changing rapidly as COVID-19-related orders continue to restrict business operations and more businesses struggle to meet their contractual obligations. Expect force majeure clauses to become more popular as an important tactic for avoiding the liability associated with a breach of contract.
COVID-19 will not be a force majeure event in every case, but rather will be determined by the specific contract language.
In Texas, “when the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure. …”
Allegiance Hillview, L.P. v. Range Tex. Prod., LLC (Tex. App.—Fort Worth 2011).
In other words, “force majeure” can have many definitions such as weather or take a broader approach to political events such as war, riots, and governmental interruptions. Whether an event qualifies is oftentimes debated, unless the event that occurred was specifically listed in the contract’s definition of “force majeure.”
Accordingly, a contractual definition of “force majeure” that includes events such as pandemics, epidemics, or governmental interruptions will be the surest scenario for successfully invoking a provision based on COVID-19. Moreover, there can be a catch-all phrase that broadens the scope of force majeure beyond the specific events listed.
When parties disagree whether an event qualifies, the answer may have to be found in litigation.
Tasked with interpreting a contract, courts are not at liberty to supplant language or add meaning that is contrary to the parties’ intent, as demonstrated in the contract. However, courts can apply the rules of contract interpretation to “fill in gaps,” such as whether COVID-19 is a force majeure event under a catch-all provision when the provision is otherwise silent about pandemics.
TEC Olmos, LLC v. Conocophillips Co. (Tex. App.—Houston, 2018).
Courts must strive to interpret contracts so that every provision has meaning; it is not permissible to render any one provision meaningless.
Texas seems to follow the rule that to qualify as a force majeure event under a catch-all provision, the event must have been unforeseeable. In the context of COVID-19, this rule is unlikely to become a topic of debate.
Then again, it really depends on the contract – pandemics might have been a (foreseeable) risk consideration in a contract involving pharmaceuticals and/or health care delivery systems.
Bottom line: do not presume that COVID-19 will excuse performance of a contract.
However, invoking a force majeure provision based on COVID-19 could become the best option legally and economically.
Anthony Cuesta, an associate with Decker Jones, focuses on commercial real estate, breach of contracts and injunctions.
Published in the Fort Worth Business Press on April 13, 2020 here.