Force Majeure and Covid-19

Force Majeure and Covid-19

Around mid-March 2020, the potential buyer of an impressionist artwork asked our client, the seller, to ship the work from the United Kingdom to the buyer’s home in the United States to help him visualise the artwork on his walls and determine whether he wanted to buy it.  The seller, via his agent, agreed to ship the painting, at the buyer’s risk and cost, to the buyer’s home for no more than three days from the date of its arrival at the buyer’s home.  Generally, potential buyers inspect works they are considering purchasing in the premises of a gallery, auction house or even in viewing rooms of storage facilities.  From time to time, potential buyers do also request that an artwork be shipped to their home prior to purchase to help them “live with” the art and determine whether they want to make the purchase.  On its face, therefore, not much about this buyer’s request was unusual.  The only unusual aspect was that the timing of this ask and shipment of the artwork coincided with the time around when the Covid-19 pandemic rapidly escalated in Europe and the United States.

The potential buyer’s lawyer sought to include a force majeure clause in the on-approval agreement, asking for flexibility and no penalty in the event that the potential buyer were unable to return the artwork to the seller’s agent within the agreed 3 day period due to the Covid-19 restrictions.  Parties could not reach agreement on the exact language of the force majeure clause.  Commercial minds prevailed and in the interest of expediency, the buyer agreed not to insist on the inclusion of the clause.  The buyer returned the artwork to the seller’s agent in a timely manner, but the buyer had to instruct another shipping company to arrange pickup and delivery as the company the buyer had originally retained to handle the return of the artwork had stopped providing services in light of the Covid-19 pandemic.  Thus, the buyer used reasonable endeavours to fulfil its end of the bargain by instructing another shipping company to return the artwork and, after some negotiation on the price, eventually decided to purchase the work.

Covid-19 has had a significant impact on the art market.  The pandemic has halted numerous transactions and many stakeholders, including artists, museums, art fairs, auction houses and galleries have ceased to operate and/or been forced to re-evaluate existing and future projects.  As a result of the Covid-19 restrictions placed in various parts of the world, some art related contracts have become difficult or impossible to perform.  Contracting parties are looking for ways to be relieved of their obligations and in England and Wales, a force majeure clause in agreements may help provide some relief.  In the absence of a force majeure clause, parties may be able to rely on common law principles of frustration or impossibility. 

Force majeure

A force majeure clause is a provision in a contract that anticipates some supervening or extraordinary event outside the parties’ control, which would prevent them from performing, in whole or in part, obligations set out in the contract.  Force majeure does not have a default legal meaning under English or New York law, in other words there is no ‘force majeure doctrine’ like there is in France and in other countries applying the Napoleonic code whereby a party to a contract can invoke force majeure even if there is no clause addressing force majeure in the contract.  In England and New York, if there is no force majeure clause, the parties cannot rely on force majeure if they are looking to be excused from their contractual obligations.  If a force majeure is found in the contract, the effect of the clause depends on how the clause is drafted.  These clauses can be drafted in specific or general terms and, depending on the language used, it can excuse a party from partially or wholly performing its obligations in a contract, permit termination of contract, and/or permit suspension of services or delay in performance.  It is not uncommon for such clauses to require that parties use reasonable endeavours to mitigate the effects of a force majeure event.  Both English and New York courts often construe and interpret force majeure clauses in a restrictive manner and infer limitations in such clauses.

A party seeking to rely on a force majeure clause bears the burden of proving that the facts at hand are those that fall within the scope of the clause, the non-performance or delay in performance was caused by circumstances beyond the party’s control and no reasonable steps that could have been taken were available to avoid the delay in performance or non-performance.  Applying these elements to the situation described at the outset of this blog, had a force majeure clause existed in the agreement between the parties and had the buyer failed to contact alternate shipping companies to arrange the return of the artwork in a timely manner, the buyer would have struggled to rely on the force majeure clause to excuse his performance.  Alternatives must therefore be explored, including alternatives available at a higher cost (provided such costs are not prohibitive) and ones that do not breach other existing agreements.

Further, the party relying on a force majeure clause must comply with any procedural requirements set out in the force majeure clause, such as providing notice of reliance on the clause, mitigating the effects of delay or non-performance and/or provision of regular and ongoing updates.

Practical Considerations

Although force majeure clauses may be effective in helping parties excuse or delay performance of their contractual obligations, they certainly do not provide parties a carte blanche excuse to walk away from their obligations.  There are some practical ways in which parties can deal with contract performance issues in light of the Covid-19 pandemic:

  • First, review existing contracts to identify if they include a force majeure clause.  If they do, consider whether you are able to continue performing your contractual obligations or if you wish to claim force majeure.  If you can continue to perform your obligations, you must continue to do so or risk breach of contract and a claim for damages. 
  • Second, use reasonable endeavours, where available, to fulfil your obligations under a contract by sourcing alternatives.
  • Third, if your performance of a given agreement is affected or will be affected as a result of the pandemic, communicate with your counterparty early to manage their expectations and, where possible, negotiate an amicable solution.
  • Finally, if you cannot continue to perform your obligations, consider whether non-performance is within the scope of the force majeure clause and the steps you must take to rely on force majeure according to the clause. It may be prudent to seek legal advice on your ability to rely on such a clause to weigh the risks and costs before making any decision.

Azmina Jasani and Emelyne Peticca