After the National Basketball Association (“NBA”) suspended its season, there were stories in sports media about the force majeure clause (ominously referred to as the “doomsday provision” in many articles) in the collective bargaining agreement. And as SARS-CoV-2/COVID-19 further affects global supply chains and business operations force majeure clauses will receive even more media attention. There will be litigation around myriad issues involving these clauses, including but not limited to whether the current situation is encompassed by the clause, whether the current situation is actually the cause of the breach, when the clause was activated, and whether the viral outbreak made performance impossible or merely inconvenient.
Consider a superficial analysis of the NBA collective bargaining agreement as an example of how such litigation could unfold. The specific language in the NBA collective bargaining agreement reads:“Force Majeure Event” shall mean the occurrence of any of the following events or conditions, provided that such event or condition either (i) makes it impossible for the NBA to perform its obligations under this Agreement, or (ii) frustrates the underlying purpose of this Agreement, or (iii) makes it economically impracticable for the NBA to perform its obligations under this Agreement: wars or war-like action (whether actual 468 Article XXXIX or threatened and whether conventional or other, including, but not limited to, chemical or biological wars or war-like action); sabotage, terrorism or threats of sabotage or terrorism; explosions; epidemics; weather or natural disasters, including, but not limited to, fires, floods, droughts, hurricanes, tornados, storms or earthquakes; and any governmental order or action (civil or military); provided, however, that none of the foregoing enumerated events or conditions is within the reasonable control of the NBA or an NBA Team.
Should NBA owners invoke this clause to refuse to pay players (hardly a foregone conclusion given the real-world optics and possible backlash against such a move), then they are probably on solid ground. Working quickly through the contractual language, the owners would need to show that the spread of SARS-CoV-2/COVID-19 constituted an epidemic. Pulling from any number of sources, the owners have a solid basis for that assertion as of the time the decision to postpone the season was made. Evaluating this contract is made easier as epidemic is expressly enumerated. But determining that this epidemic fits under the clause is not the end of the textual analysis. Under the NBA collective bargaining agreement, the Force Majeure Event must also make it impossible for the league to perform its obligations, frustrate the underlying purposes of the agreement, or make it economically impractical for the NBA to uphold its end of the bargain. This language is not nearly as clear-cut: What exactly is the threshold for economic impracticality? It must be more than just losing some money, but there is not an obvious place to draw the line (even if this example is not itself a borderline case).
As this illustrates, even a strongly worded force majeure clause still leaves room for the breaching party to argue that the clause is inapplicable. If the clause is not as strongly worded or even absent from a contract, then there will be much greater room for legal argumentation. If a contract’s force majeure clause does not expressly list epidemics, then anticipate argumentation invoking Latin canons as to why an epidemic falls within the scope of the clause or why it does not. There will be litigation concerning when the epidemic began so as to trigger the force majeure clause—was the clause triggered when China implemented massive quarantines, when the President declared a national state of emergency, when the World Health Organization declared SARS-CoV-2 a pandemic, or some other event? Also expect litigation over whether the outbreak is merely a pretense or whether it actually precipitated the contractual breach. Supply chains had been increasingly strained due to rising global trade tensions even before the viral outbreak, so if one party was already losing money under an agreement then the viral outbreak could be improperly used as an escape hatch. Additional judicial considerations will include things like who drafted the language, whether all contractual prerequisites (notice, seeking assurances, etc.) have been met, and the foreseeability of the viral outbreak.
Even in the absence of a force majeure clause, litigation will still occur under theories of frustration of purpose or economic impossibility. Under these theories, there will be disputes over whether there was a jointly held contractual purpose and again the issue of quantifying impossibility arises. There is case law arising from hurricanes, floods, and fires addressing these questions, but those cases are jurisdiction-specific and their principles may not be generalizable.
The bottom line is this: expect a bevy of litigation surrounding force majeure clauses as a result of knock-on effects of this medical emergency and there is not a one-size-fits-all answer. Contractual language varies, timing of breaches varies, and judicial temperament varies. So if you or your business is navigating a contractual breach as a result of the spread of SARS-CoV-2/COVID-19, whether as a potential plaintiff or potential defendant, continue to act in good faith towards your counterparty and carefully document how each development in the ongoing situation is affecting your business and your ability to perform under the terms of the agreement. Simultaneously, review the contract and seek the advice of an attorney who can help you navigate the nuances of any legal action you need to take to enforce your contractual rights.
Should you wish to discuss your situation or want an analysis of your contracts, do not hesitate to reach out via phone at 704.285.8400 or via email at email@example.com so we may schedule a consultation.