Force Majeure in Contracts | Arizona Contract Attorney.I am a contract attorney in Arizona and Force majeure in contract law is haute couture, or a “hot topic” at the moment, and for good reason. The global COVID-19 pandemic has flipped economies on their heads and left many of us scrambling for solutions. Authors from remote offices everywhere have filled the web with blogs, articles, and whitepapers discussing strategies for exiting, enforcing, and examining contracts based on escape hatches that were often under-evaluated when they were drafted but, if you can find a place to safely take a deep breath and slowly exhale, let’s ask: from a practical standpoint, how did we get to this point in contract law, and more importantly, where do we go when it comes to tackling the unpredictable and impossible in our business relationships.
“Force majeure” is one of several contract principles (including impracticability, frustration of purpose, and impossibility) that allows a party to delay or even excuse performance under a contract due to unforeseeable circumstances beyond their control. See A.R.S. Sec. 33-801. Typically, we think of force majeure as a major disaster, or an act of God. The fact that Arizona has not been a hotspot for natural disasters may explain why there’s not a lot of Arizona law on the topic. And while the concept of force majeure has been recognized in Arizona, in the relatively few cases it’s been considered, courts have applied rather stringent standards and not granted relief due to changing market conditions. See B.F. Goodrich Co. v. Vinyltech Corp., 711 F. Supp. 1513 (D. Ariz. 1989).
Did you have to take a look to see if your contract even has a force majeure section or clause?
If so, you probably noticed it was relegated to the boilerplate back end of the document. That’s understandable, as we tend to focus on the “important” contract terms like prices, products, services, and deadlines, coupled with the reality that we don’t want to spend time and money drafting provisions that we’re probably never going to need, right?
That’s unfortunate, because, while rare, force majeure addresses those circumstances that destroy services, contracts, and businesses. The Coronavirus Pandemic of 2020 is certainly monumental, but the fact is natural disasters and global instability have been on the rise for over a decade, (e.g. Haiti, Fukushima, Ebola, Sandy, Harvey, Maria) and our business models and relationships should reflect that reality. Savvy parties can, and have, protected themselves from disturbances or disasters with their force majeure clauses, leading to lopsided bargains that leave the unwary holding the bag. Since the advent of EBOLA and SARS, it’s not uncommon to see disease excluded from force majeure provisions.
What now? Production has been down for months, facilities are closed, costs have increased, supply lines are challenged, State and local orders have stopped some businesses in their tracks. This is different and there has to be some relief, right? It depends. Case law in Arizona is thin, so we can expect that over the next months and years, litigation will increase and case law will develop. But in too many instances, contracts and businesses can’t wait that long. In almost every case, the actual language of the contract will determine whether your contract will survive the coronavirus or not.
If you or the party you’re contracted with has been affected by the worldwide pandemic (and who hasn’t), you need to review the force majeure provisions of your contract. Considerations should include determining whether the provisions are over- or under- inclusive (disease, government acts, etc.), how terms are defined, alternative dispute requirements, choice of law provisions, and deadlines, just to name a few. Should you litigate? There’s a variety of issues to consider here, also. Are there measures short of litigation that could resolve your issues? Are you willing to foot the bill to make new law? Can you afford to proceed with litigation? Can you afford not to? An attorney can help you assess these concerns.
A good contract works for both sides and stems from a mutual desire to work together. That’s something that we shouldn’t lose sight of.
Where do we go from here? The pandemic has affected everyone worldwide, and it’s going to take everyone working together to come out of it. We need to take another look at the force majeure language tucked at the back of our contracts, especially if the contract is more than a few years old, and make sure that it works for us and reflects our current circumstances. New contracts should fairly address and spread the risk of emergencies and disasters and anticipate the steps that might be taken to address them.
If you think you have a contract that needs to be reviewed or enforced please call an experienced contract attorney. We can be reached at at (480) 833-1113.