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Law – July 7, 2020

Force Majeure – What is it?

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The profound economic downturn caused by the Covid-19 pandemic shows little sign of easing.  As companies throughout Hawai‘i look for ways to reduce the financial impacts of business closures, cancelled events and travel restrictions, it makes perfect sense that a bit of form contract legalese, the “force majeure” clause, would find its way into our everyday vocabulary.

 

Unforeseeable & Not Controllable
  • In plain terms, the force majeure clause (French for “superior force”) is a provision found in nearly all commercial and real estate contracts. This clause is intended to relieve the parties from performing their contractual obligations when certain, unforeseeable circumstances beyond their reasonable control arise;
    • Focus should be on the unforeseen nature of the force majeure event and the ability of parties to a contract to have prevented the circumstance if they acted diligently. 

 

Every Word Matters
  • In a force majeure clause, every word matters and can change the impact of the clauses’ applicability. Until recently, many contracts contain standard language to define “triggering events”, rather than tailor the provision to the contracting parties’ actual risks;
    • Current trends indicate a preference for allocating risk specifically among categories of events which could disrupt or defeat the purpose of the contract.

 

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Provisions May Be Narrowly Construed 
  • Most courts read force majeure clauses narrowly, especially those that use unspecific terminology, catch-all phrasing, or the term “act of God;”
    • A growing number of recent appellate decisions have focused on the precise force majeure language in the contract to determine the parties’ intent, rather than ruling that force majeure events must align with the common law principals of impossibility, impracticability, and frustration of purpose.

 

Take-Away

Force majeure clauses do not mean that either party is absolved from their obligations, but if properly analyzed, they can provide a framework for finding workable solutions in these unprecedented times. For more information or assistance with force majeure clauses, please visit Goodsill Anderson Quinn & Stifel or call 808-547-5600.

 

Goodsill Anderson Quinn & Stifel
999 Bishop St, Suite 1600
Honolulu, Hawai‘i 96813
(808) 547-5600

COVID-19 Might be an Act of God That Voids Busin...

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