“by reason of, and only by reason of”). Likewise, if a project owner insists that a contractor continue construction activities, the owner runs the risk of incurring liability for any subsequent COVID-19 incidents relating to the project. [12] The contract will dictate the circumstances under which performance will be excused (, A disruption that affects only the contract’s profitability may not be sufficient to constitute a, An economic downturn or generally adverse business conditions are probably insufficient to constitute a, Parties should always take care before asserting. In common law jurisdictions (such as the United States and the United Kingdom), Even if the contract or applicable law does not provide a, The extent to which COVID-19 and its downstream effects and consequences constitute a qualifying, Even if a contract does not have a specific. CARNEY Firm News, Firm News, Highlighted Articles, Summary of Construction Activities that Qualify as “Essential Business Services” Under Washington’s Stay Home-Stay Safe Order, Government Affairs and Legislative Relations. Depending on their drafting, such clauses may have a variety of consequences, including: excusing the affected party from performing the contract in whole or in part; excusing that party from delay in performance, entitling them to suspend or claim an extension of time f… However, owners should ensure that they expressly reserve their rights (in writing) to seek damages, or other available relief, from contractors in the event of any mutually agreed upon shut-down or suspension of work. 2012). Consequently, force majeure clause is an option for parties who can no longer perform their obligations due to pandemic. Consequently, if a contract contains a force majeure clause, or similar provision addressing delays caused by unforeseen conditions, it is highly unlikely that a contractor, subcontractor, or supplier can successfully rely on the impossibility to excuse its performance obligations. A global pandemic such as COVID-19 (or its downstream effects and consequences) will likely qualify as a force majeure event if the provision specifically includes references to a “pandemic,” “epidemic” and/or “disease.” If the pertinent force majeure provision does not contain such specific disease references, other more generic “catch-all” provisions pertaining to “disasters,” “acts of God,” “national emergencies,” “government regulations” or “acts beyond the control of the parties” may be asserted to allege that COVID-19 and its downstream effects or consequences are indeed force majeure events. The most common clause for such situations is force majeure, which provides relief when unforeseeable circumstances prevent the ability to fulfill your contractual obligations (through absolutely no fault of your own). Here is his best advice: Look to see if your contract has Force Majeure clause—some people call it an ‘act of god clause.’ You can read more about Force Majeure and COVID … Generally speaking, a force majeure clause will likely apply to the COVID-19 issue at hand, but it depends on the wording of the specific clause. 13. Located in Seattle, we are a full-service law firm committed to exceptional client service and professional excellence. It is important to analyze and consider the dispute resolution mechanism articulated in the contract or available under applicable law. Similarly, contractors must be cognizant of their legal and contractual obligations with respect to their employees’ health and safety and the health and safety of their subcontractors, suppliers, and any other third-parties on the project site. Due to the limiting nature of the common law position, many agreements today include a “force majeure” clause which is included in an effort to protect against the potential risk of an occurrence, through no fault or act of either of the parties, which may render the performance of contractual obligations impossible. Force majeure is a contractual defense that allows a party to suspend or discontinue performance of its contractual obligations under specific circumstances. How does a party prove that an event was not “reasonably foreseeable” and therefore was outside its control? The league has told the MLS Players Association that it will trigger a “force majeure” clause in the agreement signed in January because the COVID-19 … Our firm serves individuals and businesses of all types and sizes. Force Majeure Under the Coronavirus (COVID-19) Pandemic. When and how to respond, whether your performance or payment is excused, and whether to terminate the contract in response to the notice. 5. 11. If you have any questions concerning this article, COVID-19, or your contractual rights and obligations, please feel free to contact me at copenhaver@carneylaw.com or 206-607-4118. Likewise, most construction contracts contain provisions, which require the contractor (and its subcontractors) to comply with all applicable governmental laws, rules, and orders and maintain a safe workplace. The contract may also state that the party affected by. The best among us already included clauses in our contracts regarding esoteric legal concepts like force majeureand impossibility, which are meant to protect wedding … 10. “causes beyond contractor’s control”), and without the limiting language used in the example above (e.g. Additionally, contractors must ensure that they follow all contractual written notice requirements with respect to delays and impacts caused by COVID-19. Will consequences arising from COVID-19 constitute force majeure? While Hearst did not involve a health pandemic nor a construction contract, the decision shows that Washington Courts will first look to the parties’ written agreement to determine who bears the risk of delays and liability caused by unforeseen conditions such as COVID-19. Although Carney Badley Spellman‘s location is in Seattle, Washington, we are proud to be a part of the Washington state community and communities across the nation. Thus, Courts will not apply this principle if the excusable delay events are expressly limited to the enumerated categories. We’ve drafted the following sample force majeure language, which … Thus, courts “do not interpret what was intended to be written but what was written.” Id. It seems like Covid-19 is an “act of God,” a “superior force,” an extraordinary event that is beyond your control, so it has to be a force majeure event – – doesn’t it?. Therefore, if a contractor, subcontractor, or supplier agrees to furnish labor, materials or equipment for the construction of a project, but is no longer able to do so due to COVID-19, they may rely on the doctrine of impossibility to avoid their contractual obligations and liability for non-performance. Can a party still be sued if a qualifying event occurs, proper notice is given and mitigation occurs? Consequently, many businesses are simply unable to perform their contractual obligations. Thus, the Court held that the clause “provides a defense to liability when a party is required to perform, fails to do so, and that failure is caused by a strike or other event within its scope.” Id. However, it is also possible that a construction contract does not contain any provision or language that addresses the parties’ respective liability or relief for unforeseen circumstances that prevent contractual performance. A pandemic, like the one caused by COVID-19, may fall within the scope of your force majeure clause. Remember that in most states, an injured party has an obligation to mitigate its damages even if the. Id. . Consequently, if contracting parties agree that contractual performance, delays, or increased costs will be excused if they are caused by certain events (whether defined as a force majeure or otherwise), those agreements will be enforced as written. 73, 81 (2004). Where an alternative to non-performance is available, the contract parties should consider such alternatives in light of the relevant burdens and costs. This FAQ addresses common questions about force majeure and when and how COVID-19 might trigger such provisions. 2d 375, 386, 78 P.3d 161 (2003). If a force majeure clause does not list epidemic or pandemic as a triggering event, it is possible that the coronavirus could be covered as an act of governmental authority in some areas, given that many governments, including the United States government, have instituted lockdowns to prevent the spread of the coronavirus. For project owners, it is critical to cooperate and accommodate contractors affected by COVID-19 to prevent potential violations of governmental orders (and applicable penalties) and foreclose any argument that their acts or omissions were a violation of the implied duty of good faith and fair dealing or negligent. .” In this scenario, if events such as pandemics, disease, or public health emergencies are not enumerated, then the contractor (or party responsible for timely performance) bears the risk of delays caused by COVID-19. Force majeure is a contractual defense that allows a party to suspend or discontinue performance of its … The point is this: force majeure clauses often contain similar language. In Hearst, the Washington Supreme Court was tasked with interpreting a force majeure clause between the Seattle Post-Intelligencer and the Seattle Times, which provided as follows: Neither party shall be liable to the other for any failure or delay in performance under this Agreement, occasioned by war, riot, government action, an act of God or public enemy, damage to or destruction of facilities, strike, labor dispute, failure of supplier or workers, inability to obtain adequate newsprint or supplies, or any other cause substantially beyond the control of the party required to perform. Miami, COVID-19 was first detected in Wuhan, China, in December 2019. Thus, the doctrine of impossibility will only relieve the contractor from its contractual obligations and liability for non-performance if the contract fails to address delays caused by unforeseen circumstances. Governments and businesses have implemented measures to prevent or curtail the spread of the virus in the form of travel bans, heightened border security (and in some cases border closures), restrictions on gathering sizes, closure of non-essential stores and businesses, cancelation of public events (including concerts and sporting events), and other similar measures. Even if the respective contractual obligations and remedies with respect to COVID-19 are clear, there is still the question of when the parties’ are entitled to relief from performance. The repercussions of the COVID-19 pandemic raise the legal concept known as “force majeure,” which generally refers to events or forces that cannot be reasonably anticipated or controlled and are the fault of neither party. at 504. 12. There is a common law doctrine that if it is impossible to perform the contract due to circumstances that could not be reasonably anticipated, then failure to perform the contract is excused or delayed. A British Columbia couple who cancelled their August 2020 wedding due to pandemic concerns is not entitled by a force majeure (an ‘Act of God’) clause to … This clause outlines what happens if circumstances beyond a vendor’s control come up, such as a natural disaster, fire, health emergency, etc. Still, these clauses usually have a readily recognizable form. For example, the 2017 AIA A201 form contract provides, in pertinent part: Here, COVID-19 is undoubtedly “a cause beyond the Contractor’s control” and entitles the Contractor to an extension of time for critical path delays caused by COVID-19. 706, 716, 334 P.3d 116 (2014). /wp-content/uploads/2016/12/cbs_logo_white_200.png, /wp-content/uploads/2017/01/copenhaver_e_165_cbs_14dec16-city-e1486148153477.jpg. Any direction to continue work or refusal to grant a work stoppage by the owner could be considered an act of negligence or a breach of the implied duty of good faith and fair dealing,[2] particularly as the spread of COVID-19 becomes more pervasive and the health risks become better known. Not all defendants find themselves in that position, however, which means careful drafting to include COVID-like force majeure events is critical. While COVID-19 is of a similar class and nature as “pandemic,” or “disease,” and (arguably) “acts of God,” it is unlikely that a Court will find that COVID-19 is of the same class and nature as “labor strikes,” “war” or “terrorism.” Further, force majeure provisions rarely specify “disease” or “pandemic,” which means there is much more uncertainty under Washington law for force majeure provisions that do not contain a catchall provision or limiting language. This poses a dilemma for owners and contractors alike. [1] In this scenario, Washington Courts will apply the maxim of ejusdem generis, which provides that “a general term used in conjunction with specific terms will be deemed to include only those things that are in the same class or nature as the specific ones.” Viking Bank v. Firgrove Commons 3, LLC, 183 Wn. Last, the contract may delineate a number of excusable delay events without the type of catchall provision seen in the A201 form contract (e.g. The party or parties took all reasonable steps to try to provide notice and to avoid or mitigate the relevant event or its consequences. Carefully examine the notice to determine: Whether the form and timing of the notice was proper, The availability and impact of applicable laws and facts. Applying Washington’s rules of contract interpretation, the Court noted that the “force majeure clause provides a complete defense to liability if one party is unable to perform its obligations under the contract because of circumstances outside its control, such as a labor strike.” Id. This note demystifies these concepts and highlights some practical issues for businesses to consider. In light of the current COVID-19 pandemic, force majeure has taken on added importance and issues related to the pandemic should be included in your contracts. Both the doctrine of impossibility and force majeure provisions discussed above require that performance delays are caused by the unforeseen condition, i.e., COVID-19. They usually excuse performance under a contract in the event of an "act of God," war, insurrection, or the like. If a force majeure clause clearly covers COVID-19 as a qualifying event in light of the WHO’s declaration, parties seeking to invoke the provision will not need to establish the event was unforeseeable, but will still need to show: (1) that they took steps to mitigate the damage, and (2) that performance is truly impossible (or meets any other standard the clause requires). Until the COVID-19 (new coronavirus) pandemic, the term force majeure was one not readily recognized outside of legal circles. Conversely, the contract may expressly limit the categories of events that provide for an excusable delay through such language as “if Contractor is delayed in the performance of the work by reason of, and only by reason of . Given the recent orders of Governor Inslee, and action by other federal, local, and state officials and agencies, all construction industry companies should anticipate that future governmental orders will require them to cease all, or substantially all, construction activities. In this scenario, what will likely happen is that the venue will credit you the money for use at a later date versus refund you the money entirely. If COVID-19 is not captured within the force majeure clause (either expressly or via ejusdem generis), the contractor bears the risk of this unforeseen event. Other remedies that may be articulated in the contract or may be available under applicable law include extensions of time for completion or performance, the ability to terminate or suspend performance (in full or in part), and/or avoidance of liability. Determine whether potential insurance coverage is available, including business interruption insurance or an event-specific insurance policy. Washington, DC, Partner | These types of events are often referred to as “acts of God.” In light of the novel Coronavirus (COVID-19) pandemic, many businesses are confronting (for the first time in their corporate history) circumstances that may excuse or delay their obligations to perform under existing contracts due to the occurrence of a force majeure event. & Health Servs., 180 Wn. See Mike M. Johnson, Inc. v. Cnty of Spokane, 150 Wn. Take all steps necessary to mitigate or reduce the effects of COVID-19 (including its downstream effects and consequences) on your ability to perform under the relevant contract. It may also operate to limit a contract party’s liability. 2017 AIA A207, §§ 5.3.4, 10.2.2, 10.4. The degree of impact or impairment of a party’s performance on its contractual obligations will depend on the facts and circumstances of each situation. What if a contract does not have a force majeure clause or the force majeure clause does not address the specific circumstance in question? (emphasis added). Many force majeure clauses set out specific triggering events, which tend to vary by contract. Consequently, the question of whether delays and costs associated with COVID-19 may be excused or allocated depends primarily on the terms of the contract at issue. 9. Washington courts will generally not infer or impute additional terms or meaning to the parties’ agreement. When drafting a force majeure clause it is important to define what is meant by an event of “force majeure”. What steps can I take if force majeure might apply to my contract? In many instances, exercising a party’s disaster recovery and business continuity obligations and payment of fees is excluded from the, Domestic and international laws in both common law and civil law jurisdictions differ vastly with respect to how broadly or narrowly, This is highly fact-specific. The failure to take reasonable steps to overcome the disruption of the COVID-19 crisis may preclude a force majeure defense. 1. Washington follows the objective manifestation theory of contracts, meaning courts “impute an intention corresponding to the reasonable meaning of the words used[,]” and “give words in a contract their ordinary, usual and popular meaning unless the entirety of the agreement demonstrates a contrary intent.” Hearst Communications, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503-04, 115 P.3d 262 (2005). Is COVID-19 something that falls within that definition of force majeure? At this juncture, construction companies doing business in the State of Washington will inevitably suffer delays and impacts due to COVID-19, whether due to labor shortages, supply chain difficulties, or governmental action that restricts construction activities. App. 4. The law is likely to evolve as a result of COVID-19, and many court rulings may result from this pandemic. As the pandemic-caused shutdowns began, scholars and businesses alike re-examined the application of the doctrine in various contexts, hoping to understand how, and if, the doctrine would apply to contractual relationships affected by the pandemic. 3. COVID-19 took the United States, including its real estate industry, by surprise, and office leases that did have force majeure … In a previous client alert, we described the contractual issues that companies should assess under force majeure clauses in their existing contracts in light of the COVID-19 pandemic caused by the novel coronavirus and government measures taken in response. In light of the novel Coronavirus (COVID-19) pandemic, many businesses are confronting circumstances that may excuse or delay their obligations to perform under existing contracts due to the occurrence of a force majeure event. Force majeure clauses are contractual clauses which alter parties' obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations. 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