As the U.S. braces for the coronavirus COVID-19 pandemic, companies across a broad range of industries are increasingly affected by the growing restrictions on travel and trade. Practically speaking, concerns abound over issues like whether airlines will issue refunds for cancelled flights, or what happens to manufacturers who source materials from Asia. Indeed, the entertainment industry is not immune either. For instance, what if a production contract calls for filming in Hong Kong next week? What if talent is unable to leave their home country for a concert tomorrow? What if, heaven forbid, talent is under mandatory quarantine while recovering from the virus? At times like these, the answers usually lie in the contracts, specifically in a powerful provision that is often underestimated because it is only invoked in the unlikeliest of scenarios: the force majeure clause.
At its core, the principle underlying the doctrine of force majeure (i.e., “vis major” or “superior force”) is simple: “No man is responsible for that which no man can control.” Cal. Civ. Code § 3526. Generally, a force majeure clause is triggered when the occurrence of a force majeure event, sometimes referred to as an “act of God,” ultimately renders performance so impracticable that it is excused. Notably, the term “force majeure” is technically broader and more comprehensive than the term “act of God” because a force majeure, unlike an act of God, can originate in human agency just as readily as it can originate in a natural force (e.g., war, terrorism, workers’ strike, or quarantine), and courts similarly recognize that the doctrine of impossibility does not require a showing of actual or literal impossibility of performance, but only a showing of commercial impracticability. See George A. Locke, Act of God, 6 Am. Jur. Proof of Facts 3d § 1, Comment (1989); Seaboard Lumber Co. v. U.S., 308 F.3d 1283, 1294 (Fed. Cir. 2002). Thus, a force majeure clause is an application of the doctrine of impossibility or impracticability: performance of a contract is excused when an (1) unforeseeable event, (2) outside of the parties’ control, (3) renders performance impossible or impracticable. See Citizens of Humanity, LLC v. Caitac Int’l, Inc., No. B215232, at *14 (Cal. Ct. App. Aug. 3, 2010) (“‘Force majeure’ is the equivalent of the common law contract defense of impossibility.”); Cal. Civ. Code § 3531 (“The law never requires impossibilities.”).
In practice, a contract will often define what types of events can constitute a force majeure (e.g., earthquake, flood, fire, epidemic, mandatory quarantine, terrorism, war, workers’ strike, etc.), although specific enumeration is not necessary. When invoked, a force majeure clause is typically a shield, used as a defense to a breach of contract claim where performance is rendered impracticable or even impossible by a force majeure event, thereby excusing performance. Alternatively, a party may seek declaratory relief to determine the status of a contract in light of a force majeure. In any event, in determining whether an event constitutes a force majeure, the California Supreme Court has explained that the meaning of force majeure “is not necessarily limited to the equivalent of an act of God. The test is whether under the particular circumstances there was such an insuperable interference occurring without the party’s intervention as could not have been prevented by the exercise of prudence, diligence and care.” Pac. Vegetable Oil Corp. v. C.S.T., Ltd., 29 Cal. 2d 228, 238 (Cal. 1946).
Significantly, force majeure clauses vary depending on the nature of the contract, and parties may contract around the default rules. See Cal Civ. Code § 1511 (performance of an obligation is excused “[w]hen it is prevented or delayed by an irresistible, superhuman cause . . . unless the parties have expressly agreed to the contrary.” (emphasis added)). For instance, in an entertainment contract, a force majeure clause may give particular significance and attention to the effects of a strike as a potential force majeure. Moreover, a force majeure clause may, through its own terms, provide for a more narrow or broad application of the doctrine than what is typically applied under common law principles (e.g., a strike may temporarily suspend a studio’s contractual obligations, or it may permanently excuse a studio’s performance, depending on the specifics of the clause in the contract). Absent specific deviations, however, the underlying principles of impracticability or impossibility govern, and a party must establish the general requirements of an unforeseen, uncontrollable impracticability in order to invoke a typical force majeure clause. See Pac. Vegetable Oil Corp., 29 Cal. 2d at 238.
California courts have not ruled on the applicability of force majeure provisions with regard to a plague or epidemic such as the coronavirus. Applying the principles discussed above, however, a court would likely determine that the coronavirus outbreak and its subsequent effects were neither foreseeable nor within the parties’ control. Consequently, application of a force majeure clause would likely hinge on whether the coronavirus has rendered performance of a contract actually impossible or impracticable—this will ultimately require a circumstantial analysis. For example, if a production contract requires a party to travel to or from Wuhan, performance would almost certainly be excused under force majeure. On the other hand, if the epidemic does not necessarily hinder production, a court is less likely to excuse performance. Moreover, if the parties’ contract happens to contemplate a global health epidemic like the spread of COVID-19, express terms of the contract would dictate the ultimate result.
Force majeure issues are increasingly likely to be litigated as more contracts are affected by the coronavirus. In the entertainment industry, parties should carefully analyze the actual extent of those effects and familiarize themselves with the basic principles underlying the force majeure doctrine, as discussed above. So long as the threat continues, so will the likelihood of triggering a force majeure provision.