Based off the TPRA May 2020 presentation from Nyemaster Goode Law Firm.
Disclaimer: The following information does not represent legal advice. If you have specific questions concerning specific circumstances, please consult your attorney.
Many questions have recently come up regarding improvements that can be made to contracts as a result of COVID-19. The TPRA recently held a Practitioner Member meeting that addressed some of the contract enhancements that can be made, specifically to the Force Majeure contract clause. Per Nyemaster, "Force majeure is a contractual remedy that, under certain circumstances, excuses the nonperformance of a party when the failure to perform is caused by a “fortuitous event” that makes performance impossible." COVID-19 may be considered a Force Majeure event but it truly depends on the actual clause noted within each specific contract.
The first question to ask yourself is "Does my contract include a Force Majeure clause"? The event causing the disruption must be included in the Force Majeure clause and must excuse the party from performing services. Nyemaster suggests using specific language and limiting use of "catch-all" terms. Specific events to insert into your clause can include, but not be limited to:
Pandemic/epidemic,
Government order, law, or actions,
National or regional disaster or emergency, and
Material or Equipment shortages.
Catch-all terms to limit and/or remove include, but are not limited to:
“acts of God”,
“including without limitation”, and
“other events beyond the reasonable control of a party”.
Nyemaster explains that courts look narrowly at the Force Majeure clause. Since the burden of proof is on the non-performance party, it is important this clause contain specific information about events that could result in non-performance and what non-performance actually means. The type of evidence a court could ask for may include, but not be limited to:
Evidence that event was unforeseeable
Proof of causation between the event and the nonperformance
What is the performance standard (e.g. impossibly, impracticable); is the performance standard subjective or objective
Is clause unilateral or bilateral (which party does it actually protect)
Are there multiple Force Majeure clauses in the contract
Are there any carve outs or exclusions (e.g. payment obligations, macroeconomic conditions, delays due to subcontractors)
What is the contract’s governing law provision
Notice requirements
Mitigation requirements
Nyemaster also warns that there could be consequences when declaring Force Majeure... Namely:
Anticipatory Repudiation
Termination of Contract or Suspension of Counterparty Performance
Rate Changes
LITIGATION
Lastly, if your contract does not have a Force Majeure clause, Nyemaster suggests other alternative contractual provisions and/or common law defenses that could act similarly to a Force Majeure clause. Examples include, but are not limited to the below.
Alternative Contractual Provisions
Change in Law
Dispute Resolution
Termination for Convenience
Common Law Defenses
Impossibility - Performance is no longer possible because of a supervening event.
Impracticability - A supervening event changes the inherent nature of performance to be more difficult, complex, or challenging, contravening a basic assumption of the parties' agreement. As a result, the cost of performing increases excessively and unreasonably.
Frustration of Purpose - One party's known principle purpose for entering a transaction has been destroyed or obviated by a supervening event. Performance remains possible, but is excused when one party would no longer receive the expected value of their counterparty's performance.
To hear the full presentation provided by Nyemaster around the topic of Force Majeure and other contractual issues to consider, TPRA Members can visit the "Previous Meetings" playback page and re-listen to the May 2020 meeting.