Force Majeure Clause
Navigating through the pandemic caused by the novel Coronavirus, many businesses are facing situations that may excuse or delay their obligations to perform under existing contracts due to the occurrence of a Force Majeure event.
What is Force Majeure?
A Force Majeure is a contract provision that allows the contract parties to be excused from performing their contractual obligations when certain circumstances beyond their control.
Generally, the parties to a contract negotiate the list to allocate the risk of force majeure events. The parties can choose to negotiate that the specified force majeure event is listed or not listed, such as:
- Natural disasters: earthquakes, floods, hurricanes, tornados, wildfires, usually depending on local practice or experience. However, the more exhaustive the list, the more likely that a court may exclude any natural disaster not specifically listed in the force majeure clause (for example, a volcanic eruption)
- Pandemics, epidemics, and quarantines, such as the current events connected with COVID-19.
- War, hostilities, terrorist acts, and civil unrest.
- Changes in laws, regulations, zoning, embargoes
- Shortages of power, supplies, infrastructure, or transportation
To cover any other event not listed, parties typically include open-ended or catch-all language, such as the phrases "including, but not limited to," "Acts beyond the Parties reasonable control" "Acts of God."
If the specified event is listed, and if the specified event occurs, the impacted party is excused from performance. However, many force majeure clauses do not mention diseases, epidemics, or pandemics in their force majeure clause, and this is likely to change in future contracts. This is why it is important to review and renew your contracts.
Does a pandemic count under a force majeure?
What constitutes a force majeure event is determined on a case-by-case basis and depends upon the terms of the relevant contract, applicable law, and other relevant facts.
Force Majeure events are not limited to acts of God, but also the court's look whether under the particular circumstances there was such an "insuperable interference occurring without the parties' intervention as could not have been prevented by prudence, diligence and care." The courts look at (1) whether the triggering event is expressly listed in the Force Majeure clause or may be found in any other clause in the contract, (2) whether non-performance was foreseeable by the parties, (3) casual relation between the triggering event and the non-performance, and (4) whether performance is truly impossible.
The Nevada Supreme Court has not specifically pondered on the applicability of force majeure, but the Ninth Circuit and other courts look at (1) whether the triggering event is expressly listed in the Force Majeure clause or may be found in any other clause in the contract, (2) whether non-performance was foreseeable by the parties, (3) casual relation between the triggering event and the non-performance, and (4) whether performance is truly impossible.
The party seeking to excuse performance under the contract relying on the force majeure clause will bear the burden of proof to demonstrate the scope of the clause and demonstrate that the triggering event fall within the contract. The party will also have to show that non-performance was due to circumstances both beyond the control of the impacted party and for which the party had not assumed responsibility. If not in the contract, this is usually implied. Also, the party will need to show that performance is impossible because there have been no reasonable steps that that party could have taken to avoid or mitigate the triggering event or its consequences.
Notice of Force Majeure
The impacted party must promptly notify the other party in case of a Force Majeure event. Force majeure clauses usually have a language in them requiring the impacted party to give notice after it becomes aware of a force majeure event, within a specified number of days. If specified time is not listed, then notice should be given in a "timely," "prompt," or "seasonable" manner.
It's important to consider every scenario that your business may be placed in when drafting contracts. Force Majeure clauses are another way to make sure your company and your interests are protected. We recommend consulting with an experienced Nevada contract attorney to see if you business could benefit from a Force Majeure clause.