Force Majeure: A Cure to Contractual Disputes Over the Coronavirus?

There is no question that the coronavirus (COVID-19) is impacting the finances and operations of businesses, both large and small. The short- and long-term effects of the pandemic outbreak are difficult to assess at this early stage, but it is safe to assume that agreements will be broken, contracts will be breached, and litigation will most certainly be on the horizon.

So, where does that leave your business? Will your contracts be breached as a result of the coronavirus? Will your business be the one to breach? Will the non-performance of contractual obligations be excused as a result of the coronavirus pandemic? The answers to these critical questions will surely impact how business owners, boards of directors, and in-house counsel make strategic decisions regarding the operations of their businesses in the turbulent months ahead.

The good news is that your business may have already accounted for situations like the coronavirus. Many standard commercial and professional services contracts include “force majeure” provisions, which can excuse a party’s performance based on “acts of god.” Whether the coronavirus pandemic amounts to an “act of god” that would excuse performance of a contractual obligation is a question that will be fact and circumstance determinative. Businesses should consult litigation counsel when evaluating whether they should activate their own force majeure provisions as certain prerequisites are required.  For instance, some contracts may require the non-performing party to provide its counterpart with proper notice of the intent to exercise a force majeure clause, or to advise the other party of its rights within a certain period of time. See, e.g., 1 Am. Jur. 2d Act of God § 13 (“To avail itself of a force majeure provision, a party may need to comply with other relevant contractual provisions, such as one requiring the giving of notice to the other party.”).

But what if your company does not have a force majeure provision in its contract and has no way of performing its contractual obligations in light of the coronavirus fallout? All may not be lost for you. For example, under Florida law, the doctrine of impossibility may release a party from performing under a contract when “the purpose for which the contract was made has become impossible to perform.” See Zephyr Heaven Health & Rehab Center, Inc. v. Hardin ex rel. Hardin, 122 So. 3d 916, 920 (Fla. 2d DCA 2013) (internal citations omitted). Once again, each case will be fact and circumstance determinative, but even if your contract does not have a force majeure clause, you may still have remedies available to you that may excuse or delay performance.

Now more than ever, businesses should be mindful of the language in their contracts. The force majeure provision that a business may have glossed over when originally entering into the contract may be the key to keeping that business afloat in the future.

Simply put, review your contracts.  And then, consult with litigation counsel to determine whether you can, or should, exercise your rights under your contracts.  We are all taking extraordinary steps to protect our personal health and safety. We should all exercise the same level of care and concern for the health and safety of our businesses, as they too are under attack from the coronavirus.

Sanchez Fischer Levine, LLP is a law firm practicing in the areas of commercial litigation, arbitration, international law, and white-collar criminal defense, with offices in Miami, Ft. Lauderdale, and Los Angeles. For more information about SFL and its litigation and transactional practice, please visit www.sfl-law.com, email us at info@sfl-law.com, or call us at (305) 925-9947.