Tips for Business Negotiations During the COVID-19 Pandemic: Force Majeure and Other Concepts
As the coronavirus (COVID-19) is having a tremendous impact on the economy and society across the globe, American companies are struggling with significant disruptions to business operations. Experts warn that millions of Americans could lose their jobs in a coronavirus recession.
Companies across many industries are facing unprecedented challenges, and many may not survive the economic fallout from the coronavirus pandemic. When an unparalleled and extraordinary event – such as a virus pandemic – brings businesses to a halt, legal experts point to three legal concepts that may offer relief:
- Force majeure;
- Impossibility (impracticability); and
- The frustration of purpose.
If your company has been impacted by the coronavirus economic crisis, you need to reassess your own contractual rights and obligations when performance is delayed, or it becomes impossible to perform contractual obligations. If no consensus is reached between counterparties, the only resolution may be business litigation.
Talk to a West Palm Beach business litigation attorney to identify the available legal concepts during the coronavirus pandemic, as you might be able to invoke the force majeure clause or related doctrines when negotiating with your partners, shareholders, contractors, and other counterparties.
Invoking the Force Majeure Clause During Contract Negotiations
In the realm of business, force majeure clauses refer to “superior force” or “Act of God” provisions. This clause is a contractual provision that relieves parties from the performance of their contractual obligations when such performance becomes impossible or impractical (e.g., due to an event that the parties could not have reasonably anticipated, such as the coronavirus pandemic).
When the force majeure clause cannot be invoked to relieve parties from performance, failure to perform one’s contractual obligations would constitute a breach. When one party challenges the other party’s invocation of a force majeure clause, the dispute may be resolved through commercial litigation, especially if one party is accusing the other of a breach of contract.
How to Invoke the Force Majeure Clause During the COVID-19 Pandemic
In Florida, the party involving the force majeure clause has the burden to establish the conditions of the provision. In order to successfully invoke the force majeure clause during the coronavirus (COVID-19) pandemic, you must prove that the coronavirus was:
- outside of your control;
- not specifically foreseeable;
- the sole cause of your non-performance of contractual obligations; and
- could not have been avoided through exercising due care.
Impossibility (Impracticability) and Frustration of Purpose
If your contract does not contain a force majeure clause or the clause cannot be invoked for any reason, you may use the defense of impossibility (impracticability), alleging that the performance of obligations is not commercially practicable or possible.
Parties that raise the defense of impossibility must prove that:
- Some unforeseen event occurred (such as the coronavirus pandemic);
- The event made performance impossible (impracticable); and
- The parties could not have foreseen the event when signing the contract.
Another legal concept recognized by Florida courts is “frustration of purpose,” which can relieve parties of their contractual duties. The concept can be used in business negotiations if either party’s performance is “substantially frustrated” through no fault of his by an unforeseen event.
Your ability to discharge some or all of your contractual obligations during the COVID-19 pandemic will depend on the language of your contract as well as the underlying circumstances. While the coronavirus pandemic satisfies some of the circumstances to justify relieving parties of their duties, it may not meet all of the conditions.
Speak with our West Palm Beach business litigation lawyers at Pike & Lustig, LLP, to determine the applicability of the force majeure clause, the impossibility defense, and the frustration of purpose concept in your particular situation. Call at 561-291-8298 for a consultation.