COVID-19 pandemic’s impact continues to trickle down the economy and affect many industries. There is likely to be an influx of litigation related to the virus and how it has affected business contracts. One legal principle that may impact the outcome of these cases is “force majeure.”
Force Majeure Provisions
Force majeure provisions attempt to address the potential force of nature disruptions or acts of God that may affect the performance of a contract. These provisions define specific events for when this clause may be invoked when performance may be partially or fully excused. These provisions typically include circumstances beyond the parties’ control that cause performance to be inadvisable, commercially no sensible, illegal, or impossible. These events may include:
- Acts of God –Weather phenomena like tornadoes, hurricanes, and storms may be included within this category.
- Government actions – Government actions like quarantines and shelter-in-place orders may be included in the contract under force majeure events.
- Acts of war – This category encompasses wars, riots, revolutions, and acts of terrorism.
- Other causes – Parties can include other events outside their control, such as labor strikes or disruption in communications or transportation.
Whether COVID-19 will be considered a force majeure event depends on the specific terms in the contract. Clauses that broadly define these events may be more likely to be interpreted to include a force majeure event due to the pandemic. Likewise, if particular events such as “pandemics,” “disease,” “public health emergency,” or “government-sanctioned quarantines” may contain sufficient language that will allow parties to invoke the force majeure provision. Therefore, the first thing to do when contemplating whether a force majeure event has occurred due to the COVID-19 pandemic is to review the specific language in these provisions to see if the provision applies. Courts will look to determine if the specific event is included in the list of events or if it is similar to these enumerated events.
Your contract should also be reviewed to determine if the list of force majeure events is exclusive or non-exclusive. Ohio courts do give effect to language such as “not reasonably within the control of a party” without requiring that the event be specifically named. If the events are only examples, the current situation may meet the definition of a force majeure event if it is established that the situation was outside the invoking party’s control and is not the party’s fault or due to his or her negligence.
Under Ohio law, it is not enough that an event makes the performance more difficult, burdensome, or less lucrative. The event must prevent the execution of performance.
Impossibility of Performance
Another Ohio contract principle that may apply to post-COVID-19 cases is the common law doctrine of impossibility of performance. If your contract does not include a force majeure provision, this doctrine may allow parties to avoid performance without associated damages if performance is impossible due to the occurrence of an unforeseeable event. However, Ohio courts apply this doctrine more narrowly, so it may be difficult to invoke it. It is not enough under this doctrine that performance be “impracticable.” It must be impossible.
Frustration of Purpose
A final legal principle that may apply to these types of situations is “frustration of purpose,” which excuses a party’s performance when it is impracticable due to the occurrence of an unforeseeable event that was not contemplated at the time of making the contract. However, this doctrine is not always accepted in Ohio.
Contact Us for an Analysis of Your Contract Rights and Obligations
Determining whether the force majeure provision can be invoked in your contract or if impossibility applies is very dependent on the specific language in your contract and the facts of your case. The orders of the Director of the Ohio Department of Public Health and the governor may impact whether these provisions may apply. However, some of these provisions exclude payment obligations that can be excused because of one of these events, so you must have an experienced contract lawyer review your contract and discuss your rights and obligations. You may also have a limited time to invoke the provision or how you must provide notice before invoking the force majeure provision. Additionally, these provisions are temporary, so contractual performance may only be suspended for a portion of time while not necessarily excusing full performance.
There will likely be many disputes that arise due to problems performing contracts during the public health crisis. Contact Gary Lewis to discuss your particular situation and to learn more about your contractual rights and obligations.