What Should Business Owners Do if they Receive a Notice of Unavoidable Delay (AKA Force Majeure Notice)?

If Business A receives a force majeure notice from Business B claiming to be unable to perform its obligations under the contract due to the COVID-19 pandemic, here are the active measures that Business A should take:

• Review the contract to evaluate whether it contains a force majeure clause. If it does, then assess the exact language of the force majeure clause to see whether the claimed event indeed qualifies as a force majeure event as specified under the contract.
• Assess whether there is a causal link between the claimed force majeure event and Business B’s non-performance.
• In the absence of a force majeure clause, consider whether performance may be excused under some other legal doctrine such as frustration of contract or impossibility of performance.
• Insist that Business B provide (1) evidence of the circumstances that are allegedly delaying performance, and (2) regular updates regarding its efforts to resume performance and/or mitigate the impact of the delay.
• If appropriate, consider negotiating a written amendment to the contract to reflect a commercially sensible resolution.

Bear in mind that a force majeure notice may signal the beginning of a dispute that may ultimately need to be resolved through arbitration or litigation. It is therefore important to take all of the usual precautions for a dispute situation, including:

• Preserving all relevant records.
• Being careful not to inadvertently make statements or promises that may later form the basis for Business B’s claim that Business A agreed to waive or forego contractual rights.

Such a notice is often times referred to a “force majeure notice”.

Where Business A and Business B have orally discussed a commercial resolution, they need to be sure to exchange a written communication memorializing the discussions, and insist that any amendment to the contract conform to the requirements of the contract, including any anti-oral modification clause that may be contained therein.

Business owners must carefully monitor this fluid and rapidly evolving National Emergency and proactively work to mitigate any potential impacts that it may have on their businesses. Klehr Harrison will be an invaluable partner to those business as we help them successfully navigate through these most turbulent times.

The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.

Author Stephan Cutler is co-chair of the Real Estate & Finance Department at Klehr Harrison.