In wake of the World Health Organization (WHO) officially declaring COVID-19 (coronavirus) a global pandemic, a large number of events and travel plans around the world are being canceled or postponed every hour. On March 11 and 12, the National Basketball Association (NBA) and the National Hockey League (NHL), respectively, suspended their seasons due to the virus, while the National Collegiate Athletic Association (NCAA) has cancelled all remaining spring and winter championships, including the March Madness basketball tournaments. These sporting events will now be added to the rapidly growing list of cancelled events and conferences throughout the world due to the evolving public health threat of COVID-19.
For many, arrangements to plan, execute, participate, and attend such events were made months in advance. This has left event organizers, travel and transportation providers, and commercial goods suppliers wondering whether they will be excused from their contractual obligations. Conversely, those who have paid for events, travel, or goods are wondering whether and to what extent they will be compensated for cancellations.
Enter the “force majeure” clause. A “force majeure” clause is a contract provision that operates to excuse a party’s performance of its contractual obligations when certain unforeseeable events or conditions occur. Examples of such events within a “force majeure” clause may include: acts of God, hurricanes, earthquakes and other natural disasters, epidemics, quarantines, terrorism, government acts, embargos, labor strikes and lock-outs, and other events beyond the control of the parties.
However, contracts often fail to include a “force majeure” provision entirely; or, if they are included, often fail to state with such precise language which events would excuse the parties from their obligations. Therefore, whether a particular disease outbreak, such as COVID-19 or any of the examples listed above, constitutes a “force majeure” event often turns on the exact language of the provision, making the drafting and acceptance of such language extremely important.
To illustrate the importance of precise drafting in force majeure provisions, registrants of South by Southwest (SXSW), a popular tech, music, and film festival held in Austin, Texas, was recently canceled at the behest of local officials. In the wake of the cancelled event, SXSW organizers informed registrants that they would not offer refunds due to the cancellation. The conference organizers cited the terms and conditions of the conference that explicitly stated, “Any and all payments made to SXSW are not refundable for any reason, including, without limitation, failure to use credentials due to illness, acts of God, travel-related problems, acts of terrorism, loss of employment and/or duplicate purchases.” The registrants of the festival agreed to precisely drafted terms by the organizer and therefore appear to be barred from recovery.
While it may be far too early to predict how long COVID-19 will disrupt the global population, or whether the virus will continue to spread at rapid rates, it is never too soon to learn valuable lessons from such devastating catastrophes. Owners, contractors, purchasers, or any party to a contract should carefully understand and negotiate the terms of their agreements. “Force majeure” provisions should be precisely tailored and include all foreseeable risks. The more precisely the triggering events are drafted, and the more triggering events that are included, the more protection the parties will be afforded.
These recent events demonstrate the importance of carrying out a comprehensive risk assessment before drafting or entering into a contract. If you have questions or concerns regarding the specifics of your agreements, including whether any party may be excused from performing under them in light of COVID-19, it is advisable to meet with an experienced attorney to discuss.
Mackaness & Ideta, LLP has extensive experience in drafting and reviewing contractual language and provisions, as well as litigating contractual disputes. Please contact us today for a free and confidential consultation.