The Coronavirus effect is spreading across industries. Many sports activities are canceled. Annual meetings such as March Madness, Facebook’s F8, Mobile World Congress, and Auto Shows are canceled or organized online. The closure of the factories, the cancellation of concerts and sports activities, the cancellation of reservations in tourism, the restriction of entering the country completely affect the supply chain and the supply-demand cycle. It becomes impossible to fulfill your responsibilities in the contract. In this case, how will the responsibility be? In these and similar situations, you can use the Force Majeure provisions in your contract.
If your company has difficulty in fulfilling its commitments due to Coronavirus, you can use the Force Majeure Clause within the boilerplate provision of your contracts.
Cornell Law School Legal Information Institute describes the term force majeure as an “A provision commonly found in contracts that frees both parties from obligation if an extraordinary event prevents one or both parties from performing. These events must be unforeseeable and unavoidable and not the result of the defendant's actions; hence they are considered "an act of God".
What are force majeure events?
Force majeure events are unpredictable. They differ in detail according to the nature of the contracts. You can see that force majeure clauses are detailed, especially in insurance policies. Many force majeure clauses include; epidemics, famine, strike, war, riot, -terrorist attacks, earthquake, fire, flood, and hurricane in the list.
Many other contracts include "unforeseen similar events" for force majeure clauses. However, in case of dispute, courts can accept other events counted as force majeure as a measure and interpret the event accordingly.
How can you obtain relief under a Force Majeure Clause?
If the coronavirus pandemic or relating measures make it impossible to fulfill your responsibilities in the contract, you can use the force majeure in principle.
However, first of all, your contract must be carefully examined. Force majeure clauses in your contract should be examined by a specialist lawyer and examined how they can be interpreted. We know that force majeure clauses are generally standard in many legal contracts. Very few lawyers or draft writers are scrupulous about the boilerplate.
If you have an expression in your contract such as “disease”, “epidemic disease”, “governmental measures” or “acts of god” as force majeure, you can claim the Coronavirus is a force majeure event under the Force Majeure Clause.
You should be careful about the timing since many Force Majeure Clauses grant the non-affected party to abolish the contract if your non-performance exceeds for a period of time (usually 30-75 days). If you have clear provisions in your contract to take advantage of Force Majeure provisions, there will be no dispute. On the other hand, what will happen if the goods you need to import for the shop you rented, and the import was impossible and the tenant is unable to pay the rent? How will the conditions to comply with the terms in the lease and pay the rent will change? Unfortunately, the concept of force majeure does not have a common international definition.
However, the Coronavirus will reinterpret the Force Majeure events. Legal doctrine and judicial decisions should reassess the Force Majeure events within the framework of Covid 19 effects in case of disagreement in fulfilling the terms of the contract, it will be useful to consult a Lawyer.
What Do Early Court Decisions Tell Us?
Make sure your contract includes a comprehensive force majeure sentence and prepare documents that will prove that your failure to fulfill your contractual obligations is the direct result of this force majeure.
Many courts require proximate causation between the triggering event and hindered or impossible performance. On the other hand, it may be difficult to decide whether the proximate cause of a company’s nonperformance was due to the pandemic or government shutdowns, or the global financial crisis resulting from covıd-19.
An illustrative bankruptcy case is In Re Hitz Restaurant Group (Bankr. N.D. Ill. June 2, 2020), in which the defendant restaurant sought a Force Majeure defense for nonpayment of rent due to Illinois’ stay-at-home pandemic order. The court held the restaurant was excused from full rent payments to the property owner but was still partially responsible for rent proportionate to potential revenue from takeaways.
A District Court of Florida held that Kirkland stores did not qualify for rent abate under its Force Majeure clause because it failed to prove how the relevant government regulations on non-essential activities directly resulted in inability to meet the contractual obligations. (Palm Springs Mile Assocs. v. Kirkland’s Stores Inc., No. 20-cv-21724, S.D. Fla. Sept. 9, 2020.)
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