Articles Posted in Force Majeure

Published on:

16 March 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on the coronavirus and here for the latest on force majeure.

Note: If you are an individual consumer with coronavirus-related travel issues, please do NOT contact us! We do not represent individual consumers. We advise businesses on major contracts, investments and financing. 

On Sunday, my local Starbucks had no tables or chairs inside or outside. It has gone to “Grab n Go” service only. You cannot sit and drink your coffee or eat your muffin. This is the harbinger of things happening right now!

Hotel Lawyer: SF orders businesses to close and residents to stay at home

San Francisco became the first major U.S. city to order most non-essential businesses to close and all residents to stay at home except for essential needs.

The order, announced by Mayor London Breed on Twitter Monday, begins at midnight. Ms. Breed said that “necessary government functions” and “essential stores” will remain open.

Click here to see the official Order of the City of San Francisco.

It has been reported that six San Francisco Bay Area counties have asked residents to stay at home, and similarly ordered the closing of non-essential businesses, excluding banks, restaurants (for pick up or delivery only), health facilities and the like.

CDC, California State and local government action

On Sunday, March 15, 2020, the CDC issued new guidance for large events and mass gatherings as follows: CONTINUE READING →

Published on:

5 March 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on the coronavirus and here for the latest on force majeure.

Note: If you are an individual consumer with coronavirus-related travel issues, please do NOT contact us! We do not represent individual consumers. We advise businesses on major contracts, investments and financing. 

Coronavirus issues are likely to affect every business and industry, and the hotel industry is looking at an immediate and out-sized impact. JMBM partner Mark Adams deals with these issues across all industries on an international basis, and he has a deep involvement and understanding of the hospitality industry’s unique contracts, issues, customs and practices. In the second of his series of articles regarding the coronavirus, Mark discusses the importance of jurisdiction and contract wording when considering force majeure as a defense.

Coronavirus COVID-19 force majeure:
Contract provisions and governing law are important
by
Mark Adams

Force majeure provides an excuse for a party’s non-performance of its contractual obligations as a result of an extraordinary event or circumstance beyond the control of the parties, such as act of God, war, strike, riot, etc.

What law governs the contract? Common law or civil law principles?

Unless there is an express provision in the contract, force majeure does not exist as a standalone defense in common law jurisdictions such as the U.S. and the U.K. In civil law jurisdictions, such as France and Germany, however, force majeure is implied into every contract, unless the parties agree otherwise. In order to minimize unintended consequences, contracting parties in both jurisdictions include force majeure provisions in their agreements.

In common law jurisdictions, the general rule is strict liability for the breach of a contract. This reflects the principle of pacta sunt servanda (preserving the sanctity of the contract). But there are exceptions. Common law jurisdictions excuse performance when it is not practical and could only be done at excessive and unreasonable cost. In the U.S., the Restatement (Second) of Contracts § 261 (1981), states:

“Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.”

In the U.K., the similar doctrine of “frustration of purpose” is likewise a defense to non-performance. Frustration of purpose occurs when an unforeseen event undermines a party’s principal purpose for entering into a contract such that the performance of the contract is radically different from performance of the contract that was originally contemplated by both parties. Whether under an “impracticable” or “frustration” jurisdiction, the standard for relief is a high one, and is subjective. That subjectivity can only be definitively resolved by litigation and judicial intervention.

Specify conditions short of “impracticable”

To avoid the uncertainty of such subjective standards, contracting parties in common law jurisdictions typically include force majeure provisions to specify events or circumstances that will excuse performance of contractual obligations by a party. Such specified force majeure events might not rise to the level of “impracticable” or “frustration.” By negotiating force majeure provisions, the parties can better allocate the consequences of non-performance as between themselves. For example, in a supply contract for the purchase of medical grade masks, if the manufacturer/seller is suddenly unable to timely deliver the masks to the buyer because of a trucking strike, the manufacturer could suffer the consequences of the substantially increased costs of delivering the masks by a private carrier. So long as the delivery costs are not prohibitively higher, the manufacturer will be liable for breach of contract if the manufacturer does not perform.

The doctrines of “impracticable” or “frustration” are of no avail in these circumstances. And even if they might be available, the application of them would have to be litigated. But if a properly worded force majeure provision is in the contract it could excuse performance in the event of trucking strikes, and the manufacturer would be off the hook. CONTINUE READING →

Published on:

3 March 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on the coronavirus and here for the latest on force majeure.

Note: If you are an individual consumer with coronavirus-related travel issues, please do NOT contact us! We do not represent individual consumers. We advise businesses on major contracts, investments and financing. 

In the article below, JMBM partner Mark Adams discusses the coronavirus in relation to force majeure provisions in contracts. This legal concept goes back centuries, but has become increasingly relevant as COVID-19 may be advanced by many in the coming days as a defense to breach of contract. This article is one of a series which will discuss the principles of force majeure and the commercial implications of the coronavirus.

We start with a brief explanation of the concept and trace its roots.

COVID-19 coronavirus as a force majeure defense
to contractual non-performance
by
Mark Adams

One often doesn’t know the extent of one’s insurance coverage until a calamity occurs. So it is with force majeure provisions in contracts.

Typically, force majeure provisions are included in contracts to excuse a party from contractual obligations if some unforeseen event beyond its control prevents performance of its contractual obligations.

As of March 2, 2020, there have been 88,948 confirmed cases of this strain of the coronavirus (COVID-19) in 64 countries with 3,043 confirmed deaths. The first reported case of COVID-19 was just over two months ago on December 31, 2019 from Wuhan, China. The effects of this coronavirus have already prevented or delayed performance in countless agreements in numerous industries causing widespread commercial loss and business interruption. It is likely that travel restrictions, worker shortages, immigration quarantines, supply-chain disruptions, and event cancellations will worsen before they begin to recover. And now, those affected are dusting off their agreements to examine their force majeure provisions and determine whether they might cover a coronavirus event.

The concept of force majeure (meaning superior force) originated in the Napoleonic Code of 1804. The breaching party to an agreement was condemned unless their non-performance or delay in performance resulted from a cause that could not be imputed to them, and by a cause of a superior force or of a fortuitous occurrence. Today, most tribunals, both in common law and civil law systems, recognize that contractual performance that becomes impossible or commercially impracticable under certain contexts may be excused. That said, the words in the parties’ force majeure provision controls, and that provision is deemed to be the parties’ negotiated allocation of who bears the risks of particular catastrophic events as between them. CONTINUE READING →

Published on:

20 February 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on the impact of the coronavirus.

Coronavirus continues to be of global concern, and remains an issue the hospitality industry should be tracking, both for economic and legal reasons. Bob Braun discusses whether the virus may trigger a force majeure event for hotel operators and owners, and what that might mean for a property’s performance obligations and other operations.

— Jim

Coronavirus as Force Majeure Event:
What Hotel Owners and Operators Should Consider
by
Robert Braun

Coronavirus (COVID 19) has been a leading news item for more than a month now, competing and often pre-empting other national and international news items. For the hospitality industry, the virus has created severe disruptions in the largest single source of tourists. Hotel companies, both inside and outside of China, have warned of reductions in revenues, and as the virus continues to spread, the trend does not bode well. Like the SARS virus of 2002-2003, coronavirus has the potential to disrupt travel for months, and the travel industry will take time to recover.

Performance Tests and More
The most immediate effect will be seen by hotel companies when they review upcoming financial statements and see shortfalls. This could, among other things, cause some hotels to fail their performance obligations, giving owners the right to terminate a management agreement (unless the hotel operator exercised a right to cure the shortfall). At that point, hotel operators are likely to claim that the impact of the virus constitutes a force majeure event, which would require performance tests to change the performance obligations. For more details on performance tests, see our article on Hotel Management Agreement Performance Standards.

CONTINUE READING →