The pandemic impacted practically every part of our lives. One issue that continues to challenge businesses is the difficulty in delivering goods and services as part of their contractual agreement. Supply chain issues, challenges in hiring and maintaining staff, and other complications can leave businesses in a jam.
So, if a company cannot meet its deadline outlined in a contract, is it in breach of contract? This question has left many to dust off contracts that may have sat in a file for months or even years and scrutinize the fine print.
A force majeure clause often addresses this
Businesses are becoming familiar with the force majeure clause, which may be part of any signed agreement. It addresses the impossibility of performance due to unforeseen factors beyond their control, often referred to by the average person as an “act of God.” This concept would seem to apply to businesses unable to meet their professional obligations due to the pandemic. It does not excuse the party from fulfilling their obligations, but it can justify their inability to deliver goods, services, payment or deliverables outlined in the contract.
Courts look at many factors to see if force majeure applies. Issues to weigh include:
- Does the contract address a pandemic or related issue in the clause?
- Could the party predict or control the event leading to the dispute?
- Was non-performance due to force majeure?
Does COVID-19 qualify?
The nature of each dispute is unique, so it will depend upon the language in the contract. However, there are certain events often already listed that would seem to apply:
- Act of God
- Government intervention
- Natural disaster
- Pandemics
COVID-19 is a global phenomenon, but some started including language about pandemics after the Sars virus in the early 2000s and the Zika virus that cast a shadow over the Brazil Olympics in 2016.
What if there is no clause?
Standard business contracts also include language that allows the business to cancel a contract under the doctrine of commercial impracticability.
It is time to update those clauses
Doctors, politicians and others are quick to point out that the pandemic continues, and there may be other strains or pandemics to follow. Now is the time to reevaluate the standard contract. Businesses can address these concerns and include steps to mitigate damages caused by similar events by adding or expanding a force majeure clause.
