Force majeure has been one of the most important phrases in a lawyer’s vocabulary the last couple weeks. It’s a clause in many contracts that excuses a party from carrying out its obligations because of unforeseen circumstances.
Is force majeure working for GCs in the coronavirus crisis?
- The NBA provides a good example: The NBA postponed the season in mid March and may cancel it altogether. A force majeure clause in its contract with NBA players states that “epidemics” are considered an “act of God” that would make it impossible to fulfill payment contracts. Legal experts believe the NBA could forgo payments to athletes for any portion of games not played, although it has not done so yet.
- The key is the word “epidemics”: If your contract doesn’t have a similar way to describe what’s been happening -- pandemic, virus, disease, quarantine, state of emergency -- you may be out of luck. Courts are known to narrowly rule on the applicability of force majeure clauses and typically require a specific phrase in the contract that relates to the circumstance preventing the contract from being fulfilled.
The force majeure alternative
If a force majeure clause won’t cover the problem, lawyers can also seek to use impossibility or impracticability defenses. Doing so requires proving that it was objectively not possible to perform the duties of a contract. That’s a high bar, but restrictions on essential businesses could count as proof.
The Verdict
Analysts at Gunder Dettmer always recommend seeking potential alternatives agreeable to both parties before invoking a force majeure clause. And as you draft new contracts in the future, don’t forget key words related to epidemics and pandemics.
