4 Unintended Consequences of Invoking the Force Majeure Clause in the COVID-19 Era
With U.S. officials warning that the coronavirus crisis may destroy 40% of the nation’s economy, businesses that have been affected by the pandemic are unable to maintain their operations and fulfill their contractual obligations.
Nearly every business owner in the U.S. has googled the words “force majeure” since the beginning of the COVID-19 pandemic.
Invoking the Force Majeure Clause During the COVID-19 Pandemic
In short, a force majeure clause in contractual parties’ contract can excuse the invoking party’s failure to perform obligations under the contract when unanticipated events prevent that party from fulfilling their obligations.
It can be challenging to invoke the force majeure clause during the coronavirus crisis, as courts will consider the following factors when evaluating the applicability of the clause:
- The pandemic qualifies as force majeure under the contract;
- The invoking party’s non-performance due to the pandemic was unforeseeable and impossible to mitigate; and
- The performance of the party’s obligations is truly impossible.
Force Majeure and the Unintended Consequences
However, just because you can invoke the force majeure clause to excuse or delay performance under the contract does not necessarily mean that doing so is the best course of action. After all, the invocation of the clause may trigger unintended consequences.
Costly and Time-Consuming Lawsuits
Business litigation related to a contractual party’s invocation of the force majeure clause may be very expensive, not to mention that such a lawsuit could drag on for months or years. In the coronavirus era, when government-mandated orders shut down courts, handling a lawsuit may take even longer.
Financial Risks
If you are considering invoking the force majeure clause, speak with a West Palm Beach business litigation attorney to determine the financial risks if a court rules that the clause was improperly invoked. Also, consider whether there are any conditions placed on the force majeure event (e.g., the requirement to continue performance after a specific period).
Impact on Business Relationships
The invocation of the force majeure clause may have a negative impact on your existing and future business relationships. The invocation may cause vendors, suppliers, business partners, and other parties to reconsider doing business with you or even break the existing contracts.
Reputation Risks
A public lawsuit against your business can take a toll on your company’s reputation, which may result in a decline in sales and turn customers away from you. Also, you will be expected to reveal confidential financial information during the lawsuit, which is a critical thing to consider if you wish to invoke the force majeure clause.
Besides, what would consumers, partners, and competitors think of your business if you decide to excuse non-performance at a time when most other businesses are sacrificing a lot to perform their contractual obligations during these trying times?
Prior to invoking the force majeure clause during the COVID-19 pandemic, talk to a West Palm Beach business litigation attorney to explore your options and discuss any potential unintended consequences. Contact Pike & Lustig, LLP, for a consultation. Call at 561-291-8298.
Resource:
nypost.com/2020/04/25/coronavirus-may-destroy-40-of-the-us-economy-officials-say/
https://www.turnpikelaw.com/business-mediation-in-the-time-of-coronavirus-what-you-need-to-know/
