COVID-19 And The Force Majeure Doctrine
In the midst of the COVID-19 pandemic, many individuals and businesses find themselves in unprecedented circumstances where they do not believe they can perform under contracts that they have entered into, such as construction contracts, leases, or purchase and sale agreements.
Parties who have difficulties performing under their contracts due to the COVID-19 pandemic face the question of whether their performance under their contract can be excused. The doctrine of force majeure comes into consideration in circumstances where forces outside of a party’s control affect that party’s performance. Force Majeure is defined generally as “[a] contractual provision allocating risk if performance is rendered impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.” Blacks Law Dictionary, 674 (8th ed. 2004). Typically, force majeure does not include an event expressly foreseen, unless such event is specifically identified in a relevant contractual provision.
Often times, the contract at issue will contain a force majeure clause that applies to events identified in the contract as outside of the parties’ control. Events often referenced in such clauses include, but are not limited to, strikes, lockouts, labor disputes, governmental restrictions, hostile government action, civil commotion, judicial orders, and fires or other casualty. It is imperative that parties review their contracts to determine the scope of any force majeure clause and the extent to which nonperformance is excused. These contractual clauses may suspend all performance for the duration of the force majeure event, or they may instead suspend performance during the event except for some particular contractual requirements, such as payment of rent. Other clauses may even excuse performance. Additionally, while some contracts include pandemics and outbreaks of disease in the force majeure provisions, many do not. The details of a contract are critical and will often govern the rights of the parties. A party must also demonstrate that the force majeuere event, such as a pandemic or governmental restriction, actually hindered performance rather than simply making it more costly or time consuming. It is also worth noting that Washington State courts tend to narrowly interpret the scope of such contractual provisions in favor of performance.
If a contract does not have a force majeure provision, parties may rely on other legal defenses such as: (1) impossibility; (2) impracticability, or (3) frustration of purpose. These defenses all carry high burdens of proof. The law may excuse performance rendered legally impossible, commercially impracticable, or frustrated, in certain circumstances.
The doctrine of commercial impracticability hails from the Uniform Commercial Code and applies to the sale of goods, and requires a showing that the basic purpose of the contract has been destroyed, and that a party can only perform under extreme and unreasonable difficulty, expense, or risk of injury or loss. Impossibility, while broader in application, requires the defending party to meet a similar burden of proof. In both cases, the mere loss of revenue or increased difficulty in performance, even if significant, cannot excuse performance. Finally, a party may invoke frustration of performance where the principle purpose of a contract has been substantially frustrated due to an unforeseen event. As with the other defenses above, this requires a party asserting the defense to meet a high burden.
Whether a party can assert legal defenses to contractual performance as a result of this pandemic may depend on the nature of the contract, the nature of the business being conducted, and/or the challenge that a party faces in these uncertain circumstances. Ultimately, these are complex legal issues for which legal counsel may be of significant value. The lawyers at Beresford Booth, PLLC remain available to assist parties with determining their contractual rights in these difficult times.