FORCE MAJEURE CLAUSES: SAFE HARBOR OR DANGEROUS REEF?
The World Health Organization (WHO) declared the novel coronavirus disease (COVID-19) outbreak a Public Health Emergency” on January 30, 2020. Because of the rapid spread of the outbreak, slow government responses, and lack of early travel restrictions, COVID-19 caused significant disruption to business on a global scale. These disruptions include travel, supply chains, and most significantly the hospitality, service, and retail industries.
As a result, contract parties have claimed that the outbreak may constitute a force majeure event, which are contractual clauses that alter parties’ obligations and/or liabilities when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling obligations.
Contracts, including leases, routinely contain force majeure clauses that purport to excuse a party’s performance under specified circumstances such as war, natural disaster and/or labor strikes. Relief under a force majeure clause ranges from allowing a party to delay performance and payment to termination of the contract itself. To date however, in Washington state force majeure clauses have seen spars review by appellate courts. And, what judicial review has occurred appears to construe these clauses narrowly. See Hearst Communications, Inc. v. Seattle Times Co., 154 Wn.2d 493 (2005).
Narrow construction of force majeure clauses means that courts will focus upon the precise language of the events described in the force majeure clause that arguably excuse performance. If the clause doesn’t specifically mention a pandemic, a court may or may not equate it with a natural disaster like an earthquake, tsunami or volcanic eruption. Instead, litigants and courts may look at the contract as a whole to determine whether performance should be excused for reasons other than an event constituting force majeure. So does the coronavirus pandemic constitute a force majeure?
For example, a party may seek to suspend or terminate a contract based upon impracticality or impossibility of performance as a result of the pandemic. Presently, restaurants cannot serve customers in the restaurant itself. Is this fact alone sufficient to excuse a restaurant tenant from payment of rent? Washington courts have applied an objective standard to claims of impossibility of performance. A party’s subjective belief of impossibility is not enough to excuse performance. See O’Neal v. Colton Consolidated School district No. 306, 16 Wn. App. 488 (1976).
From the relatively few Washington cases that have considered force majeure clauses, it is uncertain whether these clauses will be triggered by mere reference to the pandemic. Instead, it is likely that courts will look closely at the parties’ intention at the time of contract formation, their course of performance and the contract language as a whole in addition to a force majeure clause to determine whether the coronavirus pandemic serves as a justification for nonperformance or contract termination.