With coronavirus already causing and likely to cause more major financial, health, and political disruptions in the coming months, we can expect many contractual and business arrangements to go unfulfilled.
Many commercial contracts contain "force majeure" clauses that attempt to excuse performance for certain triggering events. For example, many such clauses refer to "acts of God" that are outside the parties' control. These clauses attempt to allocate risk for unexpected losses.
In this article, we will briefly outline what force majeure means and how it might affect business and litigation in New York in the coming months.
What is “force majeure”?
The concept of force majeure is that a party’s performance of its contractual obligations may be excused where performance is disrupted due to unusual event(s) that are beyond its control. Whether or not the particular event(s) were foreseeable is a central inquiry.
What is a force majeure event?
A force majeure "event" is an event beyond the control of the parties that prevents performance under a contract and may excuse nonperformance. Alexander v. Chesapeake Appalachia, LLC, 839 F.Supp.2d 544 (N.D.N.Y. March 20, 2012); Beardslee v. Inflection Energy, LLC, 25 N.Y.3d 150 (NY Ct App 2015).
How do courts typically enforce force majeure clauses? Narrowly, and according to their specific language.
Force majeure clauses are narrowly construed, and only if the force majeure clause specifically includes the event that actually prevents a party's performance will that party be excused. Reade v. Stoneybrook Realty, LLC, 882 N.Y.S.2d 8 (1st Dept 2009).
New York courts tend to show a preference for only enforcing the occurrences expressly mentioned in the specific force majeure clause as opposed to extrapolating more general occurrences. Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900 (NY Ct App 1987); Phillips Puerto Rico Core, Inc. v. Tradax Petroleum Ltd., 1984 WL 677 (S.D.N.Y. 1984), judgment affirmed, 782 F.2d 314 (2d Cir. 1985).
Who bears the burden of proving force majeure?
The party who relies on a force majeure clause to attempt to excuse performance bears the burden of proving the event was beyond the party’s control and without its fault or negligence. See, e.g., OWBR LLC v. Clear Channel Communications, Inc., 266 F.Supp.2d 1214 (D. Hawaii Feb. 5, 2003).
Is the coronavirus a force majeure event in New York?
Only time will tell. The courts will likely answer this question in the coming months. There is little guiding law regarding whether a pandemic, outbreak, or quarantine qualifies as a force majeure event. Based on past precedent, courts will simply construe applicable force majeure clauses as written. However, to the extent the coronavirus expands to affect all aspects of daily life, few would dispute its effect on business could possibly qualify as a force majeure excusing performance.
We hope you found this article helpful. Feel free to contact us if you have any questions.