The COVID-19 pandemic, otherwise known as the Coronavirus, has brought an abrupt halt to everyday life for nearly all Ohioans. Ohio has implemented restrictive measures to reduce the spread of COVID-19, limiting many Ohioans’ ability to travel, work, and enjoy the amenities of American life that we are so accustomed to.
Along with the restrictive measures on individuals, came restrictions on businesses. Many businesses have been forced to temporarily close their doors and faced unprecedented challenges, including the ability to comply with contractual obligations. In facing contractual compliance issues, the concept of force majeure is at the forefront.
What is Force Majeure?
In legal terms, force majeure refers to a clause contained in many contracts that frees a person or business from the performance of a contract when a force outside the control of the party has rendered the party’s performance under the contract nearly impossible. A force majeure clause will usually contain references to specific acts that would constitute an act of force majeure, such as ‘Acts of God’, ‘Acts of War’, ‘Acts of terrorism’, ‘epidemics or pandemics.’ In evaluating whether your business has a potential claim for force majeure, the following steps should be taken:
1. Evaluate the Contract at Issue
As stated above, the basis of any force majeure claim starts within the four corners of the contract. Read through the entire contract and determine whether it contains a force majeure clause. If a force majeure clause is present, evaluate the specific acts outlined in the provision that could provide grounds for a force majeure claim. Given the current COVID-19 pandemic, does the force majeure clause specifically include epidemics or pandemics as grounds for a force majeure claim? If not, does it include language that could arguably cover a pandemic?
2. Determine Causation
If a force majeure clause is present, evaluate the specific acts outlined in the force majeure clause against the specific facts at hand. Under Ohio law, the party claiming force majeure bears the burden of proving that the force majeure event proximately caused a party’s inability to perform. Just because a force majeure event occurred, does not necessarily mean the party could not perform its obligations. And just because the party has not performed, it does not mean that the cause of the failure is a force majeure event. Each situation will be factually different and must be evaluated against the duties owed under the contract.
3. Evaluate Available Remedies
Most contracts that contain a force majeure clause will include specific remedies in the event that a lawful force majeure claim can be asserted. These remedies can range from an extension of time for a claiming party to perform obligations of the contract to the ability of the claiming party to terminate the contract without further liability. Again, an evaluation of remedies will be specific to the contract at issue and should be read thoroughly to grasp a clear picture of available options.
4. Evaluate Remedial Options and Develop a Strategy
Once all available remedies have been evaluated, determine a plan of action for addressing the situation. For example, if you have entered into a contract to lease certain commercial space for an event, such as a festival, and the restrictions from the COVID-19 pandemic have prevented you from hosting the festival, the most advantageous remedy would be a cancellation of the contract. If you are a lessee of office space, however, and COVID-19 has forced your business to close, delay in payment of rent under the lease for a certain number of months until your business can reopen may be the most advantageous remedy available.
5. What if there is no express force majeure clause?
You may still have arguments to avoid contractual obligations due to the pandemic. Other more general termination provisions in the contract may solve the problem. There are also common-law doctrines in many states that address contractual obligations that become impossible to perform, or that excuse performance if the underlying purpose for the agreement has been frustrated or eliminated. Once again, each situation is different and should be considered in light of fact-specific professional guidance.
The Future of Force Majeure
The impacts of the COVID-19 pandemic have highlighted the importance of force majeure clauses in contracts. When entering into any contracts in the future you should consider whether the contract has a force majeure clause and what events that clause covers. Force majeure clauses provide protection against the unknown, and as the old saying goes “the only thing that is certain in life, is uncertainty.” If you have questions regarding a force majeure clause in a current contract, or need advice on including a force majeure clause in a future contract, the experienced attorneys at Critchfield, Critchfield, & Johnston, Ltd. are here to help.