Force Majeure Clauses in Contracts: Drafting and Enforcing Provisions for U.S. and International Agreements

Description

As the global economy faces the unprecedented impacts of the outbreak of COVID-19, many businesses are defaulting on contractual obligations. Companies are looking at the force majeure clause, a boilerplate feature of most agreements, to mitigate some liability. Although not often negotiated or considered by counsel, force majeure provisions provide an affirmative defense to default. However, the question remains: does a pandemic like COVID-19 invoke the elements of this clause?

Amid the current economic uncertainty, businesses must determine whether circumstances presented by COVID-19 meet the legal requirements of force majeure and that such provisions are sufficiently specific to be enforceable. For a party to invoke the clause, the event must be unforeseeable. Boilerplate agreement language often includes a laundry list of events defining an "act of God," but a court may or may not agree that COVID-19 is a covered event. Further, enforcement of a force majeure clause requires that the company prove that the force majeure event defined in the contract caused a party's inability to perform a contract obligation.

Force majeure enforcement is also highly contingent on the country of implementation and, in this circumstance, the impact of the pandemic on a region's supply chain and workforce. China and the European Union use varying definitions for enforcement, and anticipating issues that may arise in a default informs counsel on how to draft the optimal provision to protect a business from future catastrophic losses.

Listen as our expert panel provides practical advice on drafting a precise and enforceable force majeure provision so counsel may save their clients from unforeseen circumstances and the next global emergency.