In continuation of our recent commentary on COVID-19, we're going to use this article to examine force majeure clauses. While most of our questions so far have come from our sports clients, all of whom are materially impacted by the sudden and nearly simultaneous prohibition against public gatherings around the world, the issue is applicable to any business that is obligated to provide goods or services to another party.
Translated from French, force majeure means superior force. The idea is that something greater than ourselves caused us not to perform a contractual obligation, despite our earnest desire to do so.
While part of US common law almost from our country’s founding, the concept is not well understood in practice. Most people tend to think of it as the “act of God” clause in a contract, but it isn’t quite that simple. Why? Well, there are two types of force majeure clauses: restricted and unrestricted. And knowing which one is in your contract is the key to negotiating a business resolution.
Restricted force majeure clauses list specific events that will excuse performance. If the event is not listed, then the obligated party must perform the contract. Unrestricted force majeure clauses are broader and include language like “including but not limited to” to indicate the list of representative events is merely to aid the parties’ discussion in the event one of them cannot perform the contract.
There is much more nuance to force majeure clauses, colored by individual state laws and specific industry customs. Each circumstance may further have distinct fact patterns that differentiate your potential claims or defenses from your industry colleagues or fellow businesses. There is also a concept called “impossibility of performance” (but it’s an affirmative defense in litigation, so we don’t want to talk about that right now).
All of us at Gutwein have spent the last few days helping our clients devise business solutions to this once-in-a-lifetime (we hope) event that reminds us of an immutable truth: we are all part of a global community. We suffer together and we will succeed together.
We urge our friends and clients to work with their business partners to maintain strong relations so that we can all emerge from this pandemic better than we were before.
It may therefore seem counterintuitive that we suggest strong legal counsel to guide you through these discussions. But legal counsel can help remove emotion from the discussion, assist in helping you know your rights, the other party's obligations, and protect against those who may use COVID-19 to obtain an unfair bargaining advantage. It is vital you ensure you're protecting yourself and your business during these difficult and uncertain times.
Those of us in the sports group are working diligently to help our leagues, teams, athletes, and sponsors identify mutually advantageous solutions. And we know our colleagues in other practice groups are doing the same. As always, our team is here to help you through your best days and your worst. Do not hesitate to call or email us with any questions.
Sports Law Practice Team
COVID-19 Response Team