PRESQUE ISLE, Maine — When the COVID-19 pandemic resulted in a statewide lockdown almost a year ago, many business owners were left to wonder if the financial hardships they experienced could reasonably excuse them from contracts that they were no longer in a position to fulfill.
Most often a business looking to avoid their contract obligations in the event of extreme circumstances turns to a “force majeure” clause. The French phrase meaning “superior force” refers to a contract provision that excuses parties from their obligations if “certain circumstances beyond their control” arise, which could include weather such as hurricanes, tornadoes and earthquakes, the loss of a building in a fire or, more recently, a global pandemic.
During the latest virtual Breakfast Briefing event held by the Central Aroostook Chamber of Commerce on Wednesday, attorney Mike Hockenbury of the Bangor-based firm Rudman Winchell spoke to business professionals about what they should expect from Force Majeure clauses and how the pandemic has influenced those provisions of contracts.
Force Majeure clauses have been essential in helping courts decide whether a party’s performance in a contract has truly been deemed impossible or just impractical given the situation, he said.
“The courts will scrutinize the language of the contract to see if the event was foreseeable,” Hockenbury said. “If you’re a carpenter and you depend on the price of lumber, a court will consider the market fluctuations in the price of lumber to be foreseeable and not allowed under a Force Majeure clause.”
To avoid a negative outcome, Hockenbury recommended that business owners work with an attorney to craft language that is as specific as possible about what qualifies as an unprecedented circumstance, which recently has begun to include global pandemics.
“There was a case in Alaska where the provision only said ‘unusually severe weather.’ But what does ‘unusually severe’ mean? If your language is too broad, the court is not going to allow the clause to negate you from your contract performance,” Hockenbury said.
The pandemic has also brought about the need for businesses to be specific when referencing pandemic-related restrictions and other government measures that could make the payments of leases or other business expenses impossible.
“You can’t use the governor’s executive order [during the pandemic] to get out of your performance unless there’s language in a Force Majeure that specifies government action,” Hockenbury said.
Hockenbury encouraged business owners who want to learn more about the details of a Force Majeure clause to contact an attorney. He said that the need for such clauses has become more prevalent among businesses looking to prepare as much as possible for the unexpected.
“We’ve been trying to get businesses through the next day, the next month at a time,” Hockenbury said. “Having that attorney to help you through these provisions could be a lifeline.”
