Force Majeure

Maybe a bit different than the usual fare on TPV, but PG hadn’t thought about the impact of Force Majeure clauses may have on a variety of different industries, including the book business.

For the record, PG doesn’t ever remember seeing a Force Majeure clause in an agreement between an author and a publisher.

From Law.com:

I remember learning about Force Majeure in law school as a 1L. It seemed like such a fringe topic that I instinctively pushed it to the back of my mind as a contract provision that must be rarely triggered in real life and therefore would likely not be tested. A Force Majeure clause is a contract provision that absolves both parties from performing under the contract because an event that is beyond either of their control (e.g. a natural disaster or a terrorist attack) has occurred and made performance under the contract “inadvisable, commercially impracticable, illegal, or impossible.” It is generally true that outside of a natural disaster like a hurricane, tornado, tsunami, earthquake, forest fire, or other natural disaster Force Majeure is rarely talked about.

Now, Force Majeure is front and center as a significant portion of America’s businesses are anxiously wondering if a number of crucial contracts that they entered into can be voided as a result of the Coronavirus. There is no telling exactly how much money could be lost by American businesses because of Force Majeure claims, but it can safely be assumed that the potential exposure figure is well into the billions, and it will certainly be the subject of litigation proceedings for a significant time to come.

To make matters worse, not all Force Majeure claims are triggered by the same events and some events that seem sufficiently out of a party’s control, like insolvency, may not trigger Force Majeure. For example, in the state of New York, if performance under the contract is only impossible because it would push an entity to bankruptcy performance will still not be excused under Force Majeure (via 407 E. 61st Garage, Inc. v. Savoy Fifth Ave. Corp.). Although it is helpful to look to the courts for guidance regarding what event may warrant a Force Majeure claim, it is often not as helpful as looking to the specific language of the contract and discovering whether or not your contract even contains a Force Majeure clause and if there are any qualifying events already enumerated by it.

Finding out if you have one of these clauses and, if you do have one, what exactly is outlined in it is certainly not easy since companies may have hundreds or thousands of contracts that they are actively a party to. For a significant portion of companies, manually reviewing (even with the help of Ctrl+F) all of their contracts to determine their potential Force Majeure exposure is a nearly impossible task that would take days.

In response to the Coronavirus crisis, AI is now being used in legal departments to search through all the contracts that they are a party to for Force Majeure clauses and then pulls the exact language of the clause. 

Link to the rest at Law.com

If you’re interested in what a Force Majeure clause looks like, here’s an example:

Neither party shall be liable for any costs or damages due to delay or nonperformance under this Data Access Services Addendum arising out of any cause or event beyond such party’s control, including, without limitation, cessation of services hereunder or any damages resulting therefrom to the other party as a result of work stoppage, power or other mechanical failure, computer virus, natural disaster, governmental action, or communication disruption.

3 thoughts on “Force Majeure”

  1. Three significant caveats here, all of which I’ve seen in publishing/entertainment-industry litigation:

    (1) There is a (weaker) force majeure clause in all contracts. For actual sales contracts, for example, Uniform Commercial Code § 2–615 provides an “impracticability due to failure of assumed preexisting conditions” defense to an accusation of breach (and remember, publishing is a mere license unless it’s legitimately work made for hire or a transfer of the entire copyright, so this probably won’t apply to post-1977 publishing contracts, and you really don’t want to try to decipher the interaction with Article 2A, especially crossing state lines); for contracts generally, common law usually well-summarized in Restatement (2d) of Contracts § 261 provides a similar albeit narrower defense.

    The difficulty is not with “what’s in the contract” but with “who has the burden of proving, to what standard, and with what kind of evidence, based on whether it’s explicitly stated in the contract.” This is where New York law often turns around to bite everyone in the butt… because New York evidence rules keep out what is often the best evidence for this (or, indeed, any other equitable) defense in a contract action, and New York’s case law on non-UCC Article 2 contracts implies that a successful equitable defense requires at least somewhat more than “more probable than not” — which is all that the party claiming breach has to prove. Except, that is, when a defense is explicitly provided in a contract, which more-closely levels the playing field.

    (2) Nonetheless, state law other than New York law may well apply. This is one of the dirty little secrets of choice of law (very similar to the sign at attended hotel/restaurant “hat checks” in bygone days that Passive Guy and I are barely old enough to remember, and in grocery-store parking lots, claiming that “management cannot be responsible for loss or damage”): A choice of law statement is often directive, but just as often intended to intimidate aggrieved parties from looking elsewhere. Consider a publisher that rejects a novel due to an event that occurs after the manuscript was submitted that makes that publisher nervous about publishing the manuscript, and then demands full repayment of the advance when the author places the manuscript with a non-NY-based publisher. New York law would deny that the publisher has unclean hands here; Massachusetts law — the author’s domicile, and where the author had a bank account that the publisher sought to attach — not so much (“not so much” that it settled rather quickly).

    (3) Always, always, always remember that in the event there’s actual litigation, it’s seldom the publisher (or other distributor in the entertainment industry) that is directing the litigation for its part. It is almost always an insurer, even when the publisher/distributor is the “plaintiff” seeking relief; and when it’s not overt direction, it’s strong influence based on what next year’s media-perils premium will be if the publisher doesn’t uphold certain positions. And that means that the party directing the litigation is even more frightened of an adverse precedent being set than would be the publisher/distributor… and even more protective of “evidentiary” rules that prevent inquiries that Might Make Someone Look Bad.

    • All excellent points as usual, C.E.

      Because of the unlikelihood of something bad enough happening that a question of whether a force majeure provision will be triggered, there tends not to be a great deal of case law on the subject, especially in smaller states. As with nearly anything litigious, however, as you point out, California and New York will have the most appellate cases.

      The other common component is that, if one of the parties suffers the consequences of an event serious enough to potentially trigger force majeure, the post-disaster dispute is likely to be determined by a bankruptcy court.

      Even in the absence of a force majeure provision, in addition to the UCC clauses you mentioned, there are always common law defenses of impossibility or impracticability as a desperate last resort.

      One of the reasons the OP caught my eye is that Coronavirus is widespread enough that a very large group of people/organizations are being impacted by it at the same time.

      There are also the broad Federal, State and Local police-power orders restricting where people can go and what they may do. Your memory will be better than mine, but I can’t recall seeing an impossibility or force majeure case where government orders of this type shut down so many commercial enterprises over a wide geographical area at the same time.

  2. There is actually a fair quantity of force-majeure-based-on-government-restrictions cases originating in early 1942 on the West Coast, thanks to the (racist and not actually justified by any stretch of the imagination) travel restrictions put in place following Pearl Harbor. Until the logistical systems ironed themselves out and formal modifications were made in light of “wartime priorities,” the curfews imposed screwed up delivery and pickup scheduling in a lot of seacoast towns. (The less said about the Oregon Supreme Court at the time, the better.)

    I’m away from my main papers, but I dimly recall that several cases arose at the Port of Oakland related to films that were either already shooting or scheduled to shoot there in the February-March 1942 timeframe; they resulted in appellate, but not California Supreme Court, opinions, and mostly settled through insurance performance bonds rather than litigation. (You know it’s a national emergency when even reinsurance carriers don’t try to weasel out of paying.)

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