Should Parties Color Outside the Lines of Force Majeure to Excuse COVID-19 Related Supply Chain Disruptions?

26 August 2020 Coronavirus Resource Center:Back to Business Blog
Authors: Stephanie M. Cash

Throughout the COVID-19 pandemic, manufacturers, suppliers, and distributors are attempting to mitigate the risks that accompany supply chain disruptions by incorporating a variety of related terms into their force majeure provisions, including pandemics, illnesses, labor shortages due to the pandemic, quarantines, and government shutdowns.  Notably, counterparties may respond negatively to such language, arguing that these circumstances do not constitute typical “force majeure” events.  Whether a court will agree depends, in part, on the state law governing the contract, the terms of the contract, and the underlying factual circumstances.  

For example, while some courts require that a force majeure event be unforeseeable, others may provide for excused performance regardless of foreseeability if the cause of non-performance is beyond the reasonable control of the non-performer.  Following the initial shock of COVID-19 on supply chains, the degree of foreseeability that a court will find in any subsequent disruption in the upcoming months is variable.  Additional limitations, like courts’ reticence to consider financial hardship alone as a reason for excused performance, or requirements for mitigation, may also complicate a party’s attempt to manage the future impacts of COVID-19 in the confines of a contract’s force majeure provision.

As such, parties in some jurisdictions may consider if there is a benefit to contracting outside the scope of a force majeure provision to best effectuate the intent of the agreement.  It may be that parties find a separate contractual provision for fact-specific contexts to be clearer, and perhaps easier for a court to apply. This approach would also side step a counterparty’s argument that certain events should not be included because a term does not fit the traditional force majeure mold.  Nevertheless, jurisdictional applications of law will still constrain this approach, and it may be that a provision purporting to allocate risk of non-performance will still be construed as a force majeure provision by a court.  Further, as additional provisions will likely be very fact-specific, it could be cumbersome to attempt to anticipate all circumstances in which intervening events or changed conditions will take place.  As a result, parties will need to continue to comprehensively analyze factors including governing law, the tenor of their relationship with a counterparty, and the scope of the agreement in deciding the best approach to handle potential COVID-19 related disruptions in contractual terms. 

Companies in all sectors of the economy continue to be impacted by COVID-19. Foley is here to help our clients effectively address the short- and long-term impacts on their business interests, operations, and objectives. Foley provides insights and strategies across multiple industries and disciplines to deliver timely perspectives on the wide range of legal and business challenges that companies face conducting business while dealing with the impact of the coronavirus. Click here to stay up to date and ahead of the curve with our key publications addressing today’s challenges and tomorrow’s opportunities. To receive this content directly in your inbox, click here and submit the form.

 
This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services