A drive through Squamish reveals a changing landscape with buildings being constructed on almost every block. Normally, you'd see all crews busy at work. But with COVID-19, some construction has continued while on other sites, it has stopped.
Why is that? Glad you asked.
What is relevant and what a corporation must inspect before closing its doors is whether or not a force majeure clause exists within contracts that may be breached by these actions. A force majeure clause permits a party to avoid legal liability when foregoing its contractual obligations due to events outside parties' control. This clause typically includes a list of specific triggering events (majeure events) such as an act of God, changes to laws and regulations, epidemics and quarantines.
However, this is not a standard clause in commercial contracts.
In February, Kira Systems analyzed 130 commercial contracts, filed on the Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) between February 2018 and February 2020. EDGAR holds submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission.
The results of the analysis were astonishing. Out of 130 commercial contracts, only 94 included a force majeure clause.
Further, out of those 94, only 13 included specific reference to public health events such as flu, epidemics, serious illness or plagues.
Further, invoking a force majeure clause is a more complex legal question compared to whether the clause exists in a contract. This involves considering the degree of impact COVID-19 is having on the corporation and whether COVID-19 is actually the cause of a corporation's inability to perform its obligations under a contract.
If a corporation has entered into contracts that lack a force majeure clause or cannot invoke it, they will have to continue operating as if its business is as usual. Thus, they may be unable to assist in "flattening the curve."
George Hall
Squamish lawyer
