On December 31, 2019, packed into a restaurant and enjoying dinner and drinks with friends, I pondered the good things that may come to pass in 2020. However, I, like many others, soon discovered that this year, less than three-quarters finished, would contain far less good than bad.
Indeed, the havoc wrought by this year can be quantified by the force majeure events: acts of God, pandemics, and national unrest. Now approaching Q4, a refresher on the interpretation of contractual force majeure provisions and the scheme for addressing “fortuitous events” in the Louisiana Civil Code may be helpful to business owners—particularly considering Hurricane Laura and a possible “second wave” of COVID-19.
Contractual force majeure provisions excuse a party’s nonperformance when an “act of God” or other extraordinary event prevents a party from fulfilling its contractual obligations.
As a matter of course, force majeure provisions are enforced by Louisiana courts, which examine several elements: (1) whether the event qualifies as a force majeure under the contract; (2) whether the risk of nonperformance was foreseeable and able to be mitigated; and (3) whether performance is impossible.
Louisiana courts have previously deemed hurricanes to be acts of God, particularly in those areas adversely impacted. Courts in other jurisdictions have found that COVID-19 may constitute an event of force majeure.
However, it may be more difficult to argue that a possible “second wave” of COVID-19 constitutes an event of force majeure, as such a circumstance may be foreseeable. If a contract does not contain a force majeure provision, or that provision is not implicated by the facts, the Louisiana Civil Code may afford relief to a party.
Under Articles 1873 to 1879, a buyer or seller is not liable for a breach caused by a “fortuitous event.” Louisiana courts have discussed fortuitous events as an “irresistible force” or “that which happens by a cause which we cannot resist.” Mark Investments, Inc. v. Motwane’s Am., Inc., 482 So. 2d 1187, 1189 (La. App. 4 Cir. 1986).
For any event that may be deemed an event of force majeure or a fortuitous event, we recommend the following proactive steps to mitigate your risk or maximize your rights, and prepare for interruption to your operations, or those of your suppliers:
• Assess what contractual force majeure rights, remedies, and requirements may apply;
• Review the notice and response requirements in your commercial contracts;
• Secure alternate supply streams in the event a supplier’s operations are impacted; and
• Retain as much information as possible about any potential force majeure claim.
Finally, even if your business declares force majeure, any attempt to mitigate your risk will be material to whether a Louisiana court determines that you took reasonable steps to continue your contractual obligations and whether performance was impossible.
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ABOUT THE AUTHOR: Josh McDiarmid is a member of Butler Snow’s Commercial Litigation Group, where he concentrates his practice in the areas of general and commercial civil litigation. He also advises clients in the oil and gas industry in all phases of exploration and production, including land and title issues, and operational and regulatory issues. Josh was recognized for his work in the inaugural Best Lawyers in America® 2021 Ones to Watch for Commercial Litigation, Litigation – Construction and Oil and Gas Law. He is licensed in Louisiana and Texas.