The COVID-19 pandemic and related governmental shutdown and travel restriction orders have seriously disrupted the way many commercial enterprises operate. In many cases, these disruptions have given rise to difficulties in performing contractual obligations where, due to COVID-19 exigencies, performance becomes impracticable or impossible. Nowhere has such disruption been more pronounced than for nonprofit member-based organizations with contracts pertaining to the holding of member conferences and meetings, some entered into several years beforehand, when, due to pandemic-related developments, it is not possible or practicable to hold such conference or meeting.
These difficulties have prompted such organizations to reconsider their approaches to negotiating contracts for conference facilities and related products and services, particularly as to contractual provisions that excuse performance in the event of unforeseen exigent circumstances. Overall, many organizations have determined that going forward, they must exercise greater care to ensure that such contracts contain clear and unambiguous provisions which expressly excuse contractual performance in cases where such performance becomes impossible or impracticable due to exigencies such as pandemics, governmental shutdown, or travel restriction orders, and the like.
The analysis of whether a party may be excused from the performance of an obligation under a contract usually starts with a determination of whether the contract has a “force majeure” clause. A force majeure clause generally excuses a party from the duty to perform a contractual obligation, and in some cases to even terminate the contract, without penalty where the purposes of the contract are frustrated or rendered impossible by circumstances or events which were not foreseeable by either party at the time the contract was made.
Whether a force majeure clause grants contractual relief in any instance depends on how it is drafted. Force majeure clauses can range from broadly-drafted, boiler-plate type provisions inserted into an agreement with little forethought (examples being provisions which excuse performance only for generalized reasons such as “events beyond a party’s reasonable control” or “acts of God”) to carefully considered and detailed provisions tailored to risks specific and unique to the particular situation. Unfortunately, when the COVID-19 crisis arose earlier in the year, many organizations faced with upcoming conferences and meetings found that the force majeure clause in their contracts for facility space and related services did not specifically reference or otherwise take into account specific events such as pandemics, epidemics, of governmental meeting or travel restrictions, thus forcing them to try to fit their circumstances within the scope of more generalized provisions of uncertain applicability. Indeed, some organizations found that their conference and related agreements contained no force majeure clause at all.
The starting point for evaluating the sufficiency of a force majeure clause in any particular context is to identify those events, risks, or needs particularly relevant to the organization and its activities, as well as to events and circumstances prevalent at the time, that could reasonably be considered as creating a material risk of an event the occurrence of which would require that the organization’s performance under the contract be excused. Once such risks are identified, the organization should, as necessary, tailor the language to expressly address the organization’s specific needs. For example, in the context of managing the risks of pandemics such as COVID-19 in a contract between a nonprofit member organization and a conference facility, it would be advisable to include some variation of the following types of events among the list of events that would excuse contract performance:
— “epidemics,” “pandemics,” or “diseases” (these events sometimes stand-alone or, alternatively, they might be further defined to require that there be, for instance, “disease” in the area where the contract is to be performed; examples of other, more restrictive approaches include, for instance, the requirement of an emergency declaration by the President of the United States or a pandemic declaration by the World Health Organization);
— suspension or curtailment of transportation (these events sometimes stand-alone or, alternatively, they might be further defined to reference, for example, such suspension or curtailment “whether in the City in which the meeting is to be held or in the city or country of origin of the attendee that prevents a specified percentage of attendees from arriving for the first peak night of the meeting“);
— governmental travel advisory or order (these events sometimes stand-alone or, alternatively, they might be further defined to require that such event, for instance, “prohibit travel to the area in which the contract is to be performed);
— governmental order prohibiting the conduct of a meeting or restricting the size of a meeting to no greater than a specified number of attendees.
If potentially applicable events excusing performance are not expressly set forth in the contract’s force majeure clause, the organization seeking performance relief based on a COVID-19-type pandemic would then be left with the uncertain and imperfect alternative of seeking cover under the typical, more general “catch-all” force majeure events such as “acts of God,” “acts beyond the control” of the parties, and the like. Expressly describing potentially applicable force majeure events is also advisable because courts in many states tend to construe force majeure clauses narrowly in cases where the language excusing performance is not specific–indeed, some courts will only excuse a party’s nonperformance if the event causing such nonperformance is specifically identified.
Once an organization has identified the types of force majeure events that should be included in the conference agreement’s force majeure clause, other key questions that an organization should consider are as follows:
- What is the Standard For Excusing Performance? Does the force majeure clause set forth a standard that must be established in order to excuse performance under the contract? For instance, does the clause excuse performance if only if it is “impossible” or “illegal” to hold the meeting, or, alternatively, may performance be excused if it is merely “impracticable” to hold the meeting (other common terms that set such a standard might refer to the meeting being “hindered,” “prevented” or “interfered with”). Each of these terms sets forth a different standard, some more restrictive than others, with important interpretive implications depending on the particular circumstances. It should be noted in this regard that a disruption which merely affects only a party’s profitability may not be sufficient to excuse contract performance unless non profitability is expressly addressed in the force majeure clause. Likewise, a mere economic downturn or generally adverse business condition will generally not by itself excuse contract performance, even if it can be established that such a downturn was specifically caused by an event such as a pandemic or was otherwise unforeseeable.
- Is There a Notice Requirement? Does the force majeure clause contain a requirement that notice of the force majeure event is given to the other party? A determination should be made whether notice is required under the force majeure provision and, if so, when and how such notice must be given. Many force majeure provisions contain detailed procedures and timelines for the providing of such notice.
- What are the Consequences of a Force Majeure Event (e.g., contract termination)? Does the force majeure clause state what the consequences are under the contract if a force majeure event occurs? For example, does the organization have the right to terminate the contract if the conference or meeting cannot be held, or, alternatively, does that clause instead only provide the organization with a temporary suspension of performance or additional time to perform? Which consequence will work for the organization will depend on the particular circumstances, but in the context of contract for a conference or meeting that must be canceled due to pandemic, mere suspension or delay in performance may not be a practicable solution, in which case termination of the contract should be expressly permitted.
- What State’s Law Governs the Contract? What state’s law governs the interpretation of the contract containing the force majeure clause? This determination of governing law may materially impact the interpretation, operation, and scope of the clause. For instance, some states read additional elements into force majeure clauses or otherwise incorporate therein common law legal doctrines pertaining to foreseeability and control, impossibility, impracticability, and frustration of purpose.
Overall, the COVID-19 pandemic has given rise to difficulties and stresses for many organizations under their conference agreements and related contracts. Such organizations are well-served by proactively utilizing the experiences gained from these difficulties to review their current and future agreements and, in particular, evaluate force majeure provisions for gaps and insufficiencies before legal issues arise in order to better protect themselves against the potentially serious consequences of not just pandemic-type situations, but other unforeseen events as well.