Navigating the Waters of COVID-19 and Contracts

| Apr 24, 2020 | COVID19 resources |

Navigating the Waters of COVID-19 and Contracts

The days are getting longer, the sun is shining brighter, and the urge to bust out of home-isolation and welcome all things spring is greater by the day. 

With spring and summer come lake days, family reunions, weddings, baby showers, block parties, and whatever other celebration we can fit into these months. If any of you are like my friends and family, these celebrations involve many, MANY, people and hugs. Additionally, these events can involve paying a pretty big penny to book the venue, catering, floral or entertainment. 

What happens if these events can’t happen due to CDC recommendations, executive orders, or the fear of getting sick? Well my friends, it’s time to dust off that contract you signed months ago, before COVID-19 was even in our vocabulary, and evaluate your options.

Force Majeure Clauses

Force majeure clauses are contractual clauses which alter parties’ obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations. Generally, the effect of a force majeure clause is to excuse performance in the event of unforeseen circumstances. It is important to look closely at the wording of this clause to know exactly who is free from liability should a force majeure event prevent one of the parties from fulfilling the obligations of the agreement. 

Is COVID-19 a Force Majeure Event?

Whether COVID-19 is a force majeure event will be specific to the language of the contract. Force majeure clauses may adopt one of several approaches to defining the type of event which may relieve a party from contractual liability:

  1. Listing specific events such as power outages, tornadoes, acts of government, or epidemics. Where the term epidemic, or pandemic is used, that would clearly cover COVID-19. Additionally, an act of government would cover government- imposed travel restrictions, quarantines, or the closing of certain non-essential businesses. However, whether, “CDC recommendations” would qualify as a force majeure event is less clear where the government makes recommendations rather than orders.
  2. Where no relevant event is specifically mentioned (such as a COVID-19 pandemic), it is a question of interpretation of whether the parties intended such an event to be covered. 
  3. Contracts might refer, generally, to events or circumstances “beyond the parties’ reasonable control”. Determining whether this covers issues arising from COVID-19 is fact-specific.

The existence of a force majeure event does not automatically mean that the parties will be protected from liability for failing to carry out the terms of the contract. Courts will also the impact of the force majeure event on the ability to perform and whether there were reasonable steps that could have been taken to avoid or mitigate the events or its consequences.

Impracticability of performance and frustration of purpose

Even if your contract does not include a force majeure clause, related common law concepts of impracticability of performance and frustration of purpose may still excuse performance. 

Performance may be impracticable because of extreme and unreasonable difficulty, expense, injury, or loss to one of the parties involved. Performance may also be impracticable because it will involve a risk of injury that is disproportionate to the intended purpose of the agreement.

Frustration of purpose occurs when the principal purpose for making the contract is frustrated without the fault of either party by the occurrence of an event; and when the parties made the contract, it was a basic assumption that this event would not occur. The principal purpose must be such an important part of the contract that both parties understood that without it, the contract would not make sense. For example, if you booked a giant beautiful venue for your wedding reception, the purpose of the contract would be frustrated when the government orders everyone to stay at home because there would be no point to booking that size of a space if nobody was going to show up to your event. 

Now What?

If you believe your spring/summer event may be disrupted by COVID-19, get ahead by looking at your contract and evaluating your options. The tough part contracts and force majeure provisions is that they are very fact-specific. If you have any questions about your event contract, give us a call and let us be your guide.

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