On December 16th, 2020, the United States District Court for the Southern District of New York issued an opinion in which the Court interpreted a force majeure provision as it relates to the COVID-19 pandemic.
In JN Contemporary Art LLC v. Phillips Auctioneers LLC, the parties disputed whether performance under a New York contract was excused due to the COVID-19 pandemic, in accordance with a force majeure clause in the contract. JN Contemporary Art LLC v. Phillips Auctioneers LLC, 2020 WL 7405262 (S.D.N.Y. 2020). The force majeure provision in the contract stated that one of the parties had the right to terminate the contract “[i]n the event that the auction is postponed for circumstances beyond our or your reasonable control, including, without limitation, as a result of natural disaster, fire, flood, general strike, war, armed conflict, terrorist attack or nuclear or chemical contamination . . .” The Court concluded that the term “natural disaster” did in fact include and cover the COVID-19 pandemic, therefore excusing performance under the contract. The Court further held that the COVID-19 pandemic, which required the shutdown of normal business activity, “is the type of ‘circumstance’ beyond the parties’ control that was envisioned” in the contract’s force majeure clause, and that the “environmental calamities” and “widespread social and economic disruptions” listed in the force majeure clause are of a similar nature to the pandemic.
It is important to note that the case has not yet reached the higher courts, and, if it does, it is unclear how the 2nd Circuit Court of Appeals will rule on the issue. Generally, New York courts narrowly construe force majeure clauses, only excusing performance in circumstances where the force majeure clause specifically included the event that prevented performance. However, if this case is upheld, it has the potential to change New York contract law and provide contractual relief to parties affected by the COVID-19 pandemic, where relief previously may not have been available.
We will continue to provide updates as the courts further discuss and rule on the COVID-19 pandemic and its impacts on force majeure clauses in contracts.
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