With various predictions of a second wave of cases on the horizon, businesses confronting these obstacles can consider a host of potential contract defenses including, force majeure, impossibility/impracticability, and/or discharge by supervening frustration of purpose. Three recent decisions, however, have highlighted some of the challenges to raising these defenses based on the ripple effects of COVID-19.
Force Majeure
Force majeure clauses are often included in commercial contracts to fully or partially excuse a party's performance that is hampered by various mutually agreed events, such as fires, hurricanes and terrorist attacks. Typically, the clauses will only provide relief if the event: fits squarely within the terms of the provision; has caused significant difficulties in performance; and was beyond the nonperforming party's control.
Many courts will also require the nonperforming party to show that it took all reasonable steps within its control to overcome the obstacles presented by the force majeure event.
In one of the first cases to consider the defense based on COVID-19, Future Street Limited v. Big Belly Solar, the U.S. District Court for the District of Massachusetts held that a force majeure provision did not excuse a licensee of its contractual obligations where it had not clearly shown that its failure to perform was caused by the effects of the pandemic.1
Future Street had moved for a preliminary injunction seeking to compel the performance of the licensor, Big Belly, under their licensing agreement for solar-powered waste and recycling bins, arguing that its own failures to comply with its minimum purchase requirements were excused under the contract's force majeure provision.
In its analysis, the court assumed, arguendo, that the pandemic fit within a catchall clause of the force majeure provision, which stated that neither party would be deemed in default for nonperformance solely due to "fire, labor disturbance, acts of civil or military authorities, acts of God, or any similar cause beyond such party's control."
Even so, the court found that Future Street's inconsistent performance under the contract before and after the outbreak of the pandemic called into question whether its relevant breaches were actually caused by the effects of COVID-19. Consequently, the court rejected Future Street's argument that its nonperformance was excused under the contract's force majeure clause and denied its declaratory judgment claim.
Please download the PDF below to read the full article for additional information on defending doctrine of impossibility or impracticability and frustration of purpose.
Interested in reading more about this issue? Stay tuned for a second bulletin being released next week.
- Future Street Limited v. Big Belly Solar, LLC, 2020 WL 4431764 (D. Mass. July 31, 2020).
