ILMA Compoundings - May 2020 - 36

COUNSEL COMPOUND

COVID-19 and Your
Contracts
By Jeff Leiter

I

was talking in early March with
Petroleum Quality Institute of
America President Tom Glenn, and
he gave me the idea for this month's
column. It is an understatement that
the novel coronavirus (COVID-19)
pandemic, and the strong mitigation
and containment measures implemented to fight it, have substantially
disrupted and decreased economic
activities that rely on ILMA members'
products. Because these negative
effects have made it difficult, if not
impossible, for many parties to contract to perform their obligations as
originally intended, many businesses
are asking whether they are obligated
to perform under their contracts, or
whether they can invoke the contract's
force majeure or impossibility clause to
excuse performance (either temporarily or permanently). Let's take a
look at force majeure or impossibility
clauses in contracts, recognizing that
the nature of the event and its impact
on specific contracts and their performance by the parties will vary.
Unless expressly provided in the
contract, force majeure is not a standalone defense to a breach-of-contract
claim in common law jurisdictions,
such as the U.S. and U.K. However,
force majeure is implied into every
contract, unless the parties agree
otherwise, in civil law jurisdictions,
such as Germany and France. Thus,
contracting parties in both types of
jurisdictions, as a matter of practice,
include force majeure provisions in

36

MAY 2020

| COMPOUNDINGS | ILMA.ORG

their agreements. By negotiating force
majeure provisions, the parties are in
the best position to allocate the consequences of nonperformance between
themselves.
A contract's force majeure clause
is intended to excuse one or both
parties' performance obligations when
circumstances arise that are beyond
the parties' control and that make performance of the contract impractical
or impossible. Force majeure circumstances typically include: (a) acts of
God (e.g., floods, fires, earthquakes
and hurricanes); (b) war, acts of
terrorism and epidemics; (c) government regulations; (d) strikes and labor
disputes; and (e) certain accidents.
Economic hardship, by itself, typically
is not enough to qualify as a force
majeure event, unless specifically negotiated and written into the agreement.
Most courts narrowly interpret
force majeure clauses, meaning that
a fact-intensive inquiry is normally
made of the specific language in the
contract. Courts try to limit damages
to where the reasonable expectation
of the parties and the performance
of the contract have been frustrated
by circumstances beyond the control
of the parties. The parties' reasonable
expectation is determined by whether
the specific event claimed to be preventing performance was foreseeable
or unforeseeable.
While more properly suited for
a lengthy law review article, if a
pandemic is now a foreseeable event

because of the worldwide COVID19 outbreak and it is not specifically
listed as a foreseeable event in the force
majeure clause, a court likely will find
that the party claiming its nonperformance assumed the risk and is liable
for damages from its nonperformance.
While it may still be possible that a
pandemic like COVID-19 could be
covered as an act of governmental
regulation, such as where states have
instituted lockdowns to prevent the
spread of the novel coronavirus, more
attention definitely needs to be paid to
force majeure clauses in your contracts
going forward.
Let me give you an example.
Assume that a contract's force majeure
clause states, in part, " ... including
an epidemic, pandemic, quarantine
restriction or other public health
restriction or advisory, the time for
the performance shall be extended
or excused ... ." Is the COVID-19
disease outbreak an "epidemic" or is it
a "pandemic"? Is a company's self-quarantine a "quarantine restriction"?
What constitutes an "advisory"? Does
a U.S. State Department cautionary
travel advisory or guidance from
the Occupational Safety and Health
Administration satisfy this term? Unless
the event is specific or the words are
clear, then a court or an arbitrator
likely will have to determine whether
the nonperformance falls within the
force majeure clause and whether such
nonperformance is excused based on
Continued on page 39


http://www.ILMA.ORG

ILMA Compoundings - May 2020

Table of Contents for the Digital Edition of ILMA Compoundings - May 2020

ILMA Compoundings - May 2020 - Cover1
ILMA Compoundings - May 2020 - Cover2
ILMA Compoundings - May 2020 - 1
ILMA Compoundings - May 2020 - 2
ILMA Compoundings - May 2020 - 3
ILMA Compoundings - May 2020 - 4
ILMA Compoundings - May 2020 - 5
ILMA Compoundings - May 2020 - 6
ILMA Compoundings - May 2020 - 7
ILMA Compoundings - May 2020 - 8
ILMA Compoundings - May 2020 - 9
ILMA Compoundings - May 2020 - 10
ILMA Compoundings - May 2020 - 11
ILMA Compoundings - May 2020 - 12
ILMA Compoundings - May 2020 - 13
ILMA Compoundings - May 2020 - 14
ILMA Compoundings - May 2020 - 15
ILMA Compoundings - May 2020 - 16
ILMA Compoundings - May 2020 - 17
ILMA Compoundings - May 2020 - 18
ILMA Compoundings - May 2020 - 19
ILMA Compoundings - May 2020 - 20
ILMA Compoundings - May 2020 - 21
ILMA Compoundings - May 2020 - 22
ILMA Compoundings - May 2020 - 23
ILMA Compoundings - May 2020 - 24
ILMA Compoundings - May 2020 - 25
ILMA Compoundings - May 2020 - 26
ILMA Compoundings - May 2020 - 27
ILMA Compoundings - May 2020 - 28
ILMA Compoundings - May 2020 - 29
ILMA Compoundings - May 2020 - 30
ILMA Compoundings - May 2020 - 31
ILMA Compoundings - May 2020 - 32
ILMA Compoundings - May 2020 - 33
ILMA Compoundings - May 2020 - 34
ILMA Compoundings - May 2020 - 35
ILMA Compoundings - May 2020 - 36
ILMA Compoundings - May 2020 - 37
ILMA Compoundings - May 2020 - 38
ILMA Compoundings - May 2020 - 39
ILMA Compoundings - May 2020 - 40
ILMA Compoundings - May 2020 - 41
ILMA Compoundings - May 2020 - 42
ILMA Compoundings - May 2020 - 43
ILMA Compoundings - May 2020 - 44
ILMA Compoundings - May 2020 - Cover3
ILMA Compoundings - May 2020 - Cover4
https://www.nxtbook.com/ygsreprints/ILMA/G124996_ILMA_vol71_no4
https://www.nxtbook.com/ygsreprints/ILMA/G123886_ILMA_vol71_no3
https://www.nxtbook.com/ygsreprints/ILMA/G123315_ILMA_vol71_no2
https://www.nxtbook.com/ygsreprints/ILMA/G122980_ILMA_vol71_no1
https://www.nxtbook.com/ygsreprints/ILMA/G121540_ILMA_vol70_no11
https://www.nxtbook.com/ygsreprints/ILMA/G120882_ILMA_vol70_no10
https://www.nxtbook.com/ygsreprints/ILMA/G120035_ILMA_vol70_no9
https://www.nxtbook.com/ygsreprints/ILMA/G121XXX_ILMA_vol70_no8
https://www.nxtbook.com/ygsreprints/ILMA/G120XXX_ILMA_vol70_no7
https://www.nxtbook.com/ygsreprints/ILMA/G119XXX_ILMA_vol70_no6
https://www.nxtbook.com/ygsreprints/ILMA/G118112_ILMA_vol70_no5
https://www.nxtbook.com/ygsreprints/ILMA/G117382_ILMA_vol70_no4
https://www.nxtbook.com/ygsreprints/ILMA/G116888_ILMA_vol70_no3
https://www.nxtbook.com/ygsreprints/ILMA/G115555_ILMA_vol70_no2
https://www.nxtbook.com/ygsreprints/ILMA/G114774_ILMA_vol70_no1
https://www.nxtbook.com/ygsreprints/ILMA/g110500_ILMA_vol69_no12
https://www.nxtbook.com/ygsreprints/ILMA/g110500_ILMA_vol69_no11
https://www.nxtbook.com/ygsreprints/ILMA/g110500_ILMA_vol69_no10
https://www.nxtbook.com/ygsreprints/ILMA/g109884_ILMA_vol69_no9
https://www.nxtbook.com/ygsreprints/ILMA/g109284_ILMA_vol69_no8
https://www.nxtbook.com/ygsreprints/ILMA/g108494_ILMA_vol69_no7
https://www.nxtbook.com/ygsreprints/ILMA/g107507_ILMA_vol69_no6
https://www.nxtbook.com/ygsreprints/ILMA/g106483_ILMA_vol69_no5
https://www.nxtbook.com/ygsreprints/ILMA/g105803_ILMA_vol69_no4
https://www.nxtbook.com/ygsreprints/ILMA/g104743_ILMA_vol69_no3
https://www.nxtbook.com/ygsreprints/ILMA/g103647_ILMA_vol69_no2
https://www.nxtbook.com/ygsreprints/ILMA/g102869_ILMA_vol69_no1
https://www.nxtbook.com/ygsreprints/ILMA/g101930_ILMA_vol68_no12
https://www.nxtbook.com/ygsreprints/ILMA/g100836_ILMA_vol68_no11
https://www.nxtbook.com/ygsreprints/ILMA/g99200_ILMA_vol68_no10
https://www.nxtbook.com/ygsreprints/ILMA/g98468_ILMA_vol68_no9
https://www.nxtbook.com/ygsreprints/ILMA/g97711_ILMA_vol68_no8
https://www.nxtbook.com/ygsreprints/ILMA/G96767ILMA_vol68_no7
https://www.nxtbook.com/ygsreprints/ILMA/G95397ILMA_vol65_no6
https://www.nxtbook.com/ygsreprints/ILMA/G94323ILMA_vol68_no5
https://www.nxtbook.com/ygsreprints/ILMA/G93127_ILMA_vol69_no4
https://www.nxtbook.com/ygsreprints/ILMA/G91785_ILMA_vol68_no3
https://www.nxtbook.com/ygsreprints/ILMA/G90956_ILMA_vol68_no2
https://www.nxtbook.com/ygsreprints/ILMA/G89146_ILMA_vol68_no1
https://www.nxtbook.com/ygsreprints/ILMA/G87981_ILMA_vol67_no12
https://www.nxtbook.com/ygsreprints/ILMA/G85409_ILMA_vol67_no11
https://www.nxtbook.com/ygsreprints/ILMA/G83595_ILMA_vol67_no10
https://www.nxtbook.com/ygsreprints/ILMA/G81672_ILMA_vol67_no9
https://www.nxtbook.com/ygsreprints/ILMA/G80238_ILMA_vol7_no8
https://www.nxtbook.com/ygsreprints/ILMA/G79388_ILMA_vol7_no7
https://www.nxtbook.com/ygsreprints/ILMA/G78361_ILMA_vol7_no6
https://www.nxtbook.com/ygsreprints/ILMA/G77448_ILMA_vol7_no5
https://www.nxtbook.com/ygsreprints/ILMA/G75899_ILMA_vol67_no4
https://www.nxtbook.com/ygsreprints/ILMA/G75036_ILMA_vol67_no3
https://www.nxtbook.com/ygsreprints/ILMA/G72720_ILMA_vol67_no2
https://www.nxtbook.com/ygsreprints/ILMA/G72220_ILMA_vol67_no1
https://www.nxtbook.com/ygsreprints/ILMA/G70970_ILMA_vol66_no12
https://www.nxtbook.com/ygsreprints/ILMA/G69813_ILMA_vol66_no11
https://www.nxtbook.com/ygsreprints/ILMA/G67522_ILMA_vol66_no10
https://www.nxtbook.com/ygsreprints/ILMA/G66343_ILMA_vol66_no9
https://www.nxtbook.com/ygsreprints/ILMA/G64859_ILMA_vol66_no8
https://www.nxtbookmedia.com