What Is Force Majeure and Why Is It So Relevant Right Now?
The COVID-19 health crisis has had an unprecedented impact on virtually every sector of modern business and industry. In many of our largest cities, this disease has emptied office buildings, shut down foot-traffic at retail stores and other establishments, and caused many otherwise brick-and-mortar businesses to go almost entirely virtual. This has caused catastrophic damage to many existing businesses and forced others to contend with continuing uncertainty.
Given this new post COVID-19 reality, an important issue for business owners to consider is how these new conditions may affect contracts rooted in and reliant on the old reality – i.e., the commerce and conditions that existed before COVID-19 imposed a near categorical lockdown on our society (at least in some of the world’s largest cities, including Los Angeles). In addressing how this new reality affects pre-existing contracts, business owners should consider and understand the relatively obscure and little-used concept of Force Majeure and how it may apply to contractual obligations they may be struggling to perform in the midst of COVID-19.
What Is Force Majeure?
Force Majeure is French for “a superior force” and denotes a legal concept in contract law in which an otherwise contractually obligated party may be excused from their contractual obligations due to forces beyond their control. The provision typically acts as a safety valve in the event of extreme and unavoidable conditions.
A Force Majeure provision will usually specify particular events or conditions that may excuse performance on the contract. Some of the most common types of events or conditions listed in a Force Majeure provision include:
Severe natural disasters, commonly referred to as “acts of God.” These may include hurricanes, tornadoes, earthquakes, wildfires, and other unpredictable natural events.
Acts of war or terrorism.
Epidemics or pandemics.
Strikes and labor disputes.
Acts of government including regulatory changes, legislative changes, and other policy changes that make the fulfillment of contractual obligations extraordinarily difficult or impossible.
Unexpected accidents that prevent the fulfillment of contractual duties.
The operative question in any contractual analysis is whether the text of the particular provision applies to the specific situation at hand. Thus, the question is whether the Force Majeure provision, as written in the operative contract, is triggered by the current conditions. And if so, what sort of relief does it provide.
As an example, a lawsuit was filed recently relating to the music festival Virgin Fest Los Angeles that had been scheduled for June 2020 but was cancelled as a result of COVID-19. The festival organizers sought a refund of the deposits paid to numerous artists scheduled to perform at the cancelled festival citing a Force Majeure provision in the agreement along with various government orders preventing the festival from occurring. The text of the applicable Force Majeure provision was as follows:
A “Force Majeure Event” means any act beyond the reasonable control of Producer, Artist, or Purchaser which makes any performance by Artist impossible, infeasible, or unsafe (including, but not limited to, acts of God, terrorism, failure or delay of transportation, death, illness, or injury of Artist or Artist’s immediate family (e.g. spouses, siblings, children, parents), and civil disorder). In the event of cancellation due to Force Majeure then all parties will be fully excused and there shall be no claim for damages, and subject to the terms set forth herein, Producer shall return any deposit amount(s) (i.e., any amount paid to Producer pursuant to the Performance Contract prior to payment of the Balance) previously received (unless otherwise agreed). However, if the Artist is otherwise ready, willing, and able to perform Purchaser will pay Producer the full Guarantee unless such cancellation is the result of Artist’s death, illness, or injury, or that of its immediate family, in which case Producer shall return such applicable pro-rata portion of the Guarantee previously received unless otherwise agreed.
Under the agreement, a “Force Majeure Event” was defined as “any act beyond the reasonable control of Producer, Artist, or Purchaser which makes any performance by Artist impossible, infeasible, or unsafe (including, but not limited to, acts of God, terrorism, failure or delay of transportation, death, illness, or injury of Artist or Artist’s immediate family (e.g. spouses, siblings, children, parents), and civil disorder).” The relief provided for such a Force Majeure Event was that all Parties would be “fully excused” and the return of any deposit “subject to the terms set forth herein.” An apparent caveat to all this: whether the Artist “is otherwise ready, willing, and able to perform[,]” in which case the “Purchaser will pay Producer the full Guarantee[.]”
Certain artists represented by the William Morris Endeavor agency refused to return the deposits stating they were “ready, willing, and able to perform” and thus the Force Majeure provision did not require them to return the deposits notwithstanding the cancellation of the festival. The lawsuit will likely turn on whether an artist qualifies as “ready, willing, and able to perform” even though such a performance, at least as contemplated by the agreement, may be illegal and/or impracticable. Would a virtual performance qualify under the agreement? Would that meet the good faith expectations or reasonable understanding of the parties under the agreement? These are the questions litigators may have to grapple with when construing these provisions in Court.
Although the applicability of any Force Majeure provision will always depend on its peculiar wording, the ongoing Coronavirus pandemic should generally satisfy listed events or conditions involving epidemics and pandemics. An epidemic generally affects multiple communities over a wide area while a pandemic is defined as a health issue that spreads across the entire globe. Certainly COVID-19 should qualify as a pandemic.
A contract may not need to expressly include epidemics and pandemics within its Force Majeure provision for the provision to apply. For example, many contracts may stipulate that government actions are potential grounds for excused or delayed performance based on Force Majeure. Thus, if a company cannot fulfill contractual obligations due to the lockdown restrictions set in place by the government, as opposed to purely because of the COVID-19 pandemic itself, this situation could still trigger the Force Majeure provision if government action is listed as one of the circumstances to which the provision applies.
If you cannot fulfill your contractual obligations due to forces beyond your control, invoking a Force Majeure provision may seem like the first and most obvious solution to the situation. Such a provision needs to read carefully, however, as the contractual terms may limit the relief available for the specified events and conditions.
What Happens If I Cannot Claim Force Majeure?
In the absence of an express Force Majeure provision, a party to a contract would still have defenses based on legal doctrines such as “impracticability” and “frustration of purpose.”
For example, if you are technically able to fulfill your contractual obligations but doing so would put members of your organization at grave risk of illness during the COVID-19 pandemic, an impracticability/impossibility defense could prevail in Court even without an applicable and express Force Majeure provision in the contract.
Likewise, some contractual relationships may become so strained by the COVID-19 pandemic and subsequent lockdown policies that one party’s intended value or service to another within a contract has been frustrated by circumstance to the point of worthlessness. In those situations, a Court may decide that the contract cannot be enforced as written and must be adapted to the changed circumstances under the legal doctrine of “frustration of purpose.”
These legal doctrines provide narrow defenses, however, and are difficult to prove in court given that judges typically prefer to make decisions based on the written terms of an agreement. It’s nevertheless possible for a contracted party to excuse a failure of performance under the recognized legal doctrines of impracticability / impossibility or frustration of purpose.
Seek Legal Advice Regarding Your Contracts.
COVID-19 has caused a wave of uncertainty that seems to touch every aspect of modern life. At this moment, contracted parties across various industries and business sectors are considering whether Force Majeure provisions in their contracts apply to their situations and give them the necessary breathing room to figure out how to adapt to current conditions.
If your organization is currently bound by a contract the object of which has been frustrated in a significant and material way by the pandemic, and you are interested in analyzing and addressing how the pandemic may impact your contractual obligations, it’s best to speak with an experienced attorney with experience in corporate contract reviews as soon as possible.
 For example, on March 25, 2020, it was reported that large retail chain the Cheesecake Factory would not be paying rent to its various landlords for any of its storefronts because of “extraordinary events” stemming from the Coronavirus shutdown. https://la.eater.com/2020/3/25/21194144/cheesecake-factory-rent-strike-chain-restaurant
 Importantly, a force majeure provision is not intended to buffer a party against the normal risks of a contract. See Horsemen’s Benevolent & Protective Assn. v. Valley Racing Assn. (1992) 4 Cal.App.4th 1538, 1565.