As with the rest of the country, Hawaii businesses will be affected by Covid-19. In the wake of this unprecedented pandemic, significant interruptions and widespread cancellations have already taken place as a direct result of Hawaii’s mandatory quarantine for travelers and stay-at-home orders.
So far, many sectors vital to Hawaii’s economy have been severely impacted, including hotels, restaurants, airlines, venue rentals, tourism related activities, and entertainment/events. Many of the businesses in these sectors utilize contracts that include “force majeure” provisions. Such businesses may be able to invoke these force majeure provisions to excuse any nonperformance as a direct result of interruptions caused by Covid-19.
Force majeure is generally defined as “an event or effect that can be neither anticipated nor controlled; especially, an unexpected event that prevents someone from doing or completing something that he or she had agreed or officially planned to do. The term includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars).” While a pandemic like Covid-19 technically fits the definition of a force majeure event, whether a force majeure clause applies here remains to be seen.
Generally, force majeure clauses are construed narrowly, and will therefore be limited by the specific language in each contract. Force majeure is not a fixed rule of law that regulates the content of all force majeure provisions, but instead is a term that describes a particular type of event. Force majeure clauses cannot be used as an escape route for interruptions of production or financial hardship that could have been prevented. Rather, in order to use a force majeure clause as an excuse to nonperformance, the event must have been beyond the party’s control and without its fault or negligence.
In Hawaii, one key factor when looking at force majeure provisions is determining whether a party’s excuse is sought solely for the economic hardships it would incur by performing. Or, is performance made nearly impracticable because of an occurrence neither party contemplated?
Covid-19 is distinguishable from the majority of force majeure case law. Because it is a novel occurrence (and a global pandemic on this scale has not occurred in more than a century), it is likely not a basic assumption parties contemplated when entering into a contract. Generally, parties themselves define the contours of force majeure in their agreement, and those contours dictate the application, effect, and scope of force majeure, and reviewing courts are not at liberty to rewrite the contract or interpret it in a manner which the parties never intended. Because few parties likely contemplated a global pandemic, existing force majeure clauses in contracts may be inapplicable unless they specifically allude to the current situation (for example, if they contain language excusing non-performance in response to a virus, unforeseen travel restrictions, etc.).
However, because the virus is so novel, the scope of a force majeure provision may be broadened by courts in certain circumstances, even where the parties did not specifically contemplate it. For example, it is possible that certain “catch-all” language in some force majeure provisions will be deemed to include a pandemic.
The Covid-19 pandemic will undoubtedly bring new legal challenges and theories. If attempting to excuse performance based on a force majeure provision, parties must first look to the specific language in their agreement. In the absence of ambiguity, generally courts will strictly enforce only the causes contemplated between the parties; meaning that without mentioning the words pandemic, disease, virus, or the like, there is no guaranty that any remaining catchall phrase will include Covid-19. On the other hand, the novelty of such a crisis gives way to possible changes in the law or new developments in force majeure interpretations. Indeed, legislatures across the country are adapting and looking at ways to further mitigate losses. Legislation may provide another avenue for displaced businesses. For more information about navigating force majeure clauses or recent developments in the law that may affect your business, please contact us at info@starnlaw.com.