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Can Companies Rely on Force Majeure?

July 1, 2020

Since President Donald Trump declared COVID-19 a national emergency on March 13, 2020, people have had to deal with the lock-downs and restriction measures meant to curb the spread of the disease.

Most companies such as Facebook and Twitter have allowed their staff to work remotely; gatherings banned while flights are only allowed to operate during emergencies.

With all the restrictions, most parties with commercial contracts may fail to fulfill their end of the bargain. Determining if a company is obliged to get the work done or subject to penalties depends on whether the contract signed has a force majeure clause.

Understanding the meaning of a force majeure clause

Force majeure is a French term that literally means “superior force”. A force majeure clause is a section of the contract that that relieves that contracting side from fulfilling the obligations in the contract if circumstances make it illegal, impossible, or impractical to carry out the obligations.

However, the language used should pinpoint the particular circumstances or situations where the clause may be operationalized.

When creating the clause, it is always important to include all possible situations that can potentially prevent the fulfillment of the contract’s obligations.

Below is a demonstration of a force majeure clause:

“A force majeure situation means the happening of any action of terrorism, war fire, flood, explosion, earthquake, lockdown, slowdown, hurricane, strike, prolonged energy supply shortages, government or state’s action that prohibit any party from fulfilling their part or act of God”

This clause is important because it gives both parties relief when they find themselves in unforeseen situations that make it difficult to abide by the terms of the contract.

Circumstances when a force majeure clause can be operationalized

Courts in the United States interpret the Majeure clause in a narrow way – almost entirely depending on how the clause was drafted.

For example, if a party is trying to dodge liability for not fulfilling his or her part of the contract, the court won’t acquit the party by simply saying “impossible”.

Instead, the party invoking the clause should prove that certain things have rules have been followed. Below are some of the things that the court will look into:

1. Can the situation be considered as force majeure?

The party must prove that the situation either has or will make it impossible to fulfill the contractual obligations as stated in the contract.

Once this has been proved, the party will still have to demonstrate that the event is covered in the words of the Majeure clause. If that’s not established, then the force majeure clause won’t be invoked.

2. Was the force majeure situation unpredictable?

After establishing that the event qualifies to a force majeure, the party contesting must prove that the event was unpredictable. This part is often easy to agree on unless the party invoking the clause is proved to have had prior knowledge that the event would occur.

The burden of proving a lack of insider knowledge of the event happening will be upon the party invoking the clause.

3. Did the force majeure event lead to the failure to perform?

If a party or individual is able to prove that the Majeure event was unpredictable, then the next step will be to demonstrate to the court the link between the event and the inability to perform.

For instance, if an aircraft manufacturing company was unable to deliver aircraft to clients who had already paid because of the COVID-19 pandemic, then the company will be required to prove causation.

4. Is there no way to perform?

Finally, the company must demonstrate that the unpredictable event was so severe or damaging that it makes the fulfillment of the contractual terms impossible.

For instance, if an event company had scheduled a series of events in the state of Florida prior to the COVID-19 outbreak, it would be impossible to host them due to the COVID-19 social distancing rules.

In a nutshell, companies can rely on force majeure layers when it comes to failing to fulfill contractual obligations. All you need is to find an experienced lawyer to represent you.

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