The COVID-19 pandemic has affected several areas of business, from mandatory shutdowns to issues retaining workers and clients. The pandemic has caused numerous issues that have required drastic solutions. Often, the solution is breaking a contract by invoking a force majeure clause. A force majeure clause is a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise.
Force majeure clauses are included in most contracts and are often drafted using “boilerplate” language, meaning the same (or similar) clause language is found in different contracts regardless of the subject. In contrast, a well-tailored and thoughtfully drafted force majeure clause can serve as a successful defense to a breach of contract claim. In New York, the force majeure language is interpreted narrowly and in consideration of their purpose, which is to excuse performance of the contract where the reasonable expectations of the parties have been frustrated due to circumstances beyond the control of the parties.[1]
The issues related to the COVID-19 pandemic have challenged the effectiveness of force majeure clauses, with several lawsuits asking the courts to determine whether the language found in the clauses are applicable to the interruptions caused by the pandemic. The rulings have been inconsistent – courts nationwide ruled during the early days of the pandemic that COVID-19 was an unforeseeable event and that a force majeure clause was applicable. More recently, courts have started to find that after enduring two years of the pandemic, COVID-19 is now a foreseeable event, and thus, a force majeure clause is not applicable.[2]
In a recent case, the effectiveness of force majeure clauses during the pandemic was evaluated again. The U.S. Court of Appeals for the Second Circuit (which includes New York) upheld a motion to dismiss entered by the district court, ruling that the defendant’s invocation of the force majeure clause was valid. In the case of JN Contemporary Art LLC v. Phillips Auctioneers LLC, 21-32-CV, 2022 WL 852293 (2d Cir Mar. 23, 2022), the Second Circuit held that a force majeure clause was properly invoked because “the COVID-19 pandemic, coupled with the state government’s orders restricting the activities of nonessential business, constitute an occurrence beyond the parties’ reasonable control.” The court also reasoned that the phrase “without limitation” found in the force majeure clause is catch all language, which allowed the government shutdowns to be classified along with the other listed events that would excuse performance.
The catch all language was critical to the Defendant-Appellee prevailing, however, the inclusion of broad language that may consider pandemic related issues, does not always result in the excusal of performance, as courts have determined that such language indicates foreseeability. In the case of A/R Retail LLC v Hugo Boss Retail, Inc., 72 Misc 3d 627 (Sup Ct 2021), the court ruled that a commercial lease defined the force majeure clause to include government closures related to the COVID-19 pandemic. The closures were deemed as foreseeable, and thus, the tenant could not prevail on a claim for rescission of a lease for frustration of purpose based on those closures and reduced business as result of the pandemic.
Whether a party to a contract is seeking to invoke a force majeure clause to escape performance or enforce performance, the clause language must be scrutinized to accurately assess one’s risk in this unpredictable environment. As the pandemic continues, related events are likely to be deemed foreseeable, and unlikely to excuse non-performance via a force majeure clause. Business owners and individuals alike need to understand and assess this risk before entering into any contract or commercial lease.
Our Firm has experience counseling businesses and individuals on COVID-19 contractual issues, as well as preparing and implementing strategies relating to the changing pandemic landscape. If you have any questions related to this Legal Briefing, please contact any member of our Firm at 585-730-4773. Please note that any embedded links to other documents may expire in the future.
This Legal Briefing is intended for general informational and educational purposes only and should not be considered legal advice or counsel. The substance of this Legal Briefing is not intended to cover all legal issues or developments regarding the matter. Please consult with an attorney to ascertain how these new developments may relate to you or your business. © 2022 Law Offices of Pullano & Farrow PLLC
Comentarios