Force Majeure Defense in Texas Amid COVID-19
Historically, Texas businesses have been affected by hurricanes, floods, tornadoes, and fires. This year, virtually every business has also had to deal with complications related to the novel COVID-19 pandemic. All of these terrible events have had wide-ranging impacts, including rendering parties unable to perform their contractual obligations. This has placed contractual force majeure clauses front and center for many businesses seeking relief, as performance of contractual obligations agreed to before the pandemic have emerged difficult, and sometimes impossible. While a force majeure defense may seem easy to invoke at first glance, particularly as it relates to the COVID-19 global pandemic, there are multiple factors to be considered depending on fact, circumstance, and the nature of your business.
There is no “standard” force majeure clause in Texas, and simply including such a clause in a contract will not excuse a party from performing contractual obligations merely because circumstances become harder or more expensive. The language of each force majeure provision remains subject to negotiation like any other terms of a contract in Texas, and Texas courts will accordingly respect the intent of the parties in relying on the language of the provision. Therefore, Texas courts will focus their interpretation of a force majeure clause based primarily on the events specifically identified, which prior to 2020 likely included a hurricane, flood, and fire, but may not have included a health pandemic.
Act of God and Catch-All
Many force majeure clauses specifically include language related to an “Act of God,” and some also have a “catch-all” provision. However, even when the force majeure clause includes an Act of God and a catch-all phrase, this language itself may not be sufficient to account for all other unnamed events as was intended. In relying on the force majeure clause of your contract as a defense, An Act of God cannot simply occur, but must also be found to be the sole cause of the inability to perform the contract.
As it relates to a catch-all phrase, Texas courts will apply common-law notions of ejusdem generis (meaning the latter must be limited to things like the former) and foreseeability. While catch-all language caselaw is very fact specific, the ejusdem generis standard generally requires the event alleged to be of the same type that is specifically identified in the contract. For example, if a contract to host a concert does not include any language related to a government order, and a government official made an order preventing groups of more than five people from gathering, a narrow reading of the contract may not allow such a government order to be claimed as a force majeure defense under the catch-all language of the contract. Foreseeability largely depends on the regularity of the event. While flooding in Houston, a severe weather storm in Dallas, and the fluctuation in gas prices are all considered foreseeable events, the foreseeability of the current pandemic is likely to be significantly litigated.
Notice might be the most overlooked consideration of any force majeure clause. Depending on the circumstances, it could be the most important consideration in a force majeure defense. If one does not give proper notice or fails to give proper notice timely under the terms of the contract, this could prevent a party from invoking force majeure as a defense. While a given timeframe in a contract might appear easy to calculate and follow on its face, it can be quite complex when dealing with force majeure events. For example, consider a contract requiring a party that wants to invoke a force majeure defense to provide notice to the other party within ten days of the force majeure event. In this example, we will assume the current 2020 pandemic as the force majeure event rendering one party unable to carry out its contractual obligations. Depending on the specific facts, circumstances, nature of the business, and language in the contract itself, the 10-day timeframe within which notice must be given could be found to have started on the day the World Health Organization declared an emergency. However, depending on the specific contractual language and surrounding facts, the 10-day notice timeframe might have begun as of the date of the first diagnosed COVID-19 case worldwide, the date of the first diagnosed COVID-19 case in the United States, or the date of the first diagnosed COVID-19 case in Texas, each of which would have drastically different implications on your force majeure defense with regard to notice.
There are many considerations when negotiating, invoking, or denying force majeure provisions in any contract. If your business is entering contracts with specific force majeure provisions, is considering invoking force majeure, or has received a notice of force majeure, consult legal counsel early in the process. The lawyers of Musgrove Law Firm, P.C. are available to assist with your force majeure defense, as well as many other complex business issues, mergers & acquisitions, intellectual property, and real estate matters. Our goal is to be not only excellent lawyers, but true business partners with our valued clients. Contact us today to schedule a consultation.