Troy Fuhriman, ‘Rethinking Force Majeure in the Era of COVID-19: The Ironic Case for More Oppressive Shutdowns’

The COVID-19 pandemic has led to people all over the world struggling to fulfill their contractual obligations. Some companies in industries ranging from tourism to dentistry, as well as manufacturing supply chains, have been impacted by the virus. Even more than they have been impacted directly by the virus, individuals, governments and companies have seen their ability to perform contractual obligations impacted by, inter alia, shutdowns, mandatory restrictions, voluntary isolation measures, and losses of revenue.

The current crisis is one wherein a single act of God, the pandemic, has been added upon with countless government guidelines, regulations, and mandates, including shutdowns. As a result of both acts of God and acts of government, contractual parties have found themselves unable to pay landlords, suppliers, employees and hosts of other contractual counterparties. As a result, there have been and will continue to be numerous claims to get contractual terms modified or voided. Regardless of the legal regime in which such claims are made, there are certain elements of force majeure-related doctrine that need to be considered. This includes deciding whether the claimed force majeure event lies outside of the scope of control of the party seeking relief.

One of the most interesting results of common force majeure analysis would be that two companies that engage in the same type of shutdown operations, which impair their ability to perform contractual obligations, would end up with different outcomes. A contracting party that is impaired because a company has shut down due to a mandatory government regulation would be more likely to be the beneficiary of force majeure relief than a company that shutdown as a result of following government guidelines that are technically voluntary. Thus, contracting parties that are under more oppressive regulatory regimes are more likely to have better force majeure outcomes than those engaged in similar behavior voluntarily, even if acting under government guidelines. This perverse result militates in favor of rethinking whether parties should be treated differently for shutting down or taking other steps voluntarily or mandatorily in order to stop a pandemic. Indeed, under current commonly applied force majeure standards, government authorities have to consider whether it is actually more merciful to businesses to force them to shut down rather than just encouraging shutdowns through guidelines. Thus, we have to rethink force majeure doctrine, at least in the context of a pandemic. This line of thinking has implications for public policy makers, courts, arbitral panels and contracting parties now and into the future.

Fuhriman, Troy Christian, Rethinking Force Majeure in the Era of COVID-19: The Ironic Case for More Oppressive Shutdowns (January 31, 2021). Journal of Legal Studies, volume 29, no 1, pp 75-105 (2021).

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