By Jessica L. Swadow, Esq. and Swata J. Gandhi, Esq.
It may seem like standard practice now to add terms like “pandemic” and “epidemic” to force majeure clauses, but courts construe force majeure clauses narrowly. The more specific your examples, the more risk you run in litigation because your language will be narrowly construed.
Some scholars suggest that it may be a savvy business move to eliminate force majeure clauses in their entirety and simply rely on the common law doctrine of impossibility. This may make sense if the contract is with the sole supplier or if there are inventory obligations that should suspend the need for the clause. But, if you exclude a force majeure clause in its entirety, it’s possible the court may view this as an agreement between the parties to accept the risk of non-performance.
Observing the best practices below can help you craft a force majeure clause that mitigates the ambiguities that exist in this seemingly clear-cut area of law.
A well-drafted force majeure clause contains four components:
- First, you should determine what performance would be excused by a force majeure triggering event. Consider questions like:
- Will a triggering event excuse failure to perform in the entirety, or just excuse a default, delay, or failure to satisfy some specific condition?
- Will performance of both parties be excused, or one party only?
- What types of breach do you anticipate should a triggering event occur?
- Second, you should determine what types of unforeseeable events will excuse the breaching party. This may seem counterintuitive — how do we anticipate unforeseen events? And, doesn’t the fact that an example is listed mean that the parties did foresee the event? Although many force majeure clauses include lists of examples, it is best practice to include a catch-all provision, such as “unanticipated events beyond the parties’ control” or “anything beyond the reasonable control of the parties.” Additionally, keep in mind that while COVID-19 was largely considered “unforeseen” in 2020, according to most, that is no longer the case.
- Third, you should evaluate and determine the causal connection between failure of performance and the force majeure event. Phrases such as “caused by,” “due to,” or “as a result of” are typically understood to require proximate cause. Comparatively, the term “solely caused by” imposes a higher burden, making an already narrowly interpreted clause even narrower.
- Fourth, you should determine precisely what will happen if performance is excused. Consider questions like:
- Will only future performance be excused, or will past performance be unwound?
- Will deposits be returned?
- How long does a party have to invoke the force majeure clause?
- How is notice given that a party is invoking the force majeure clause?
- Are mitigation efforts required?
Court Opinions to Consider
These opinions provide useful force majeure analyses in connection with the COVID-19 pandemic.
- JN Contemp. Art LLC v. Phillips Auctioneers LLC, 507 F.Supp.3d 490 (S.D.N.Y. 2020), aff’d, 29 F.4th 118 (2nd Cir. 2022)
- In re Hitz Restaurant Group, 616 B.R. 374 (N.D. Ill. 2020)
- NetOne, Inc. v. Panache Destination Management, Inc., No. 20-CV-00150-DKW-WRP, 2020 WL 3037072 (D. Haw. June 5, 2020)
Force Majeure Drafting Tips
- Do not treat the force majeure clause as boilerplate.
- Review the list of events that are included carefully.
- Consider broadening some of the events, for example in a contract for a venue rental, you may want to include “threats of terrorism” and not just “terrorist acts.”
- Determine whether the event would actually be seen as unforeseeable.
- Check the law of the governing jurisdiction to see how courts have previously ruled on force majeure clauses.
- Consider including specifics about mitigation and the types of mitigation efforts are appropriate for the industry.
- Review other contract provisions.
Another Useful MSBA Resource: Contract Drafting And Review For The Maryland Lawyer
Jessica L. Swadow is an Associate in Shapiro Sher’s Insurance Law Group. She represents insurance companies, producers, and other professionals in complex insurance coverage litigation, business torts, and other commercial disputes.
Swata J. Gandhi is Counsel with Miles & Stockbridge PC, where she focuses on general business and commercial law, with deep experience in mergers, acquisitions and other significant transactions.