After the Storm—Key Force Majeure Issues
A "force majeure" clause is a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance commercially impracticable or impossible. In Louisiana, absent agreement to the contrary, force majeure excuses parties from liability when they fail to perform due to a fortuitous event that makes performance impossible. So, in determining whether the doctrine applies, it is necessary to determine (1) whether performance is impossible and (2) whether the impossibility was caused by a fortuitous event. Here are a few things to consider when confronting force majeure issues:
In many commercial transactions, force majeure issues have been addressed in the contract, so it is important to obtain and review the contract.
Many contractual provisions and some statutory provisions require a party that is claiming force majeure to notify the other parties to the contract of the event of force majeure. Some provisions require "prompt," "timely," or "seasonable," notice. Therefore, it is important to determine promptly whether there is a notice requirement in your client's situation. Don't just assume that because everyone knows about the 2016 flooding in Baton Rouge and surrounding parishes, notice provisions can be disregarded.
Some force majeure provisions or situations may totally relieve a party of an obligation to perform a contractual obligation. Other situations may merely suspend or delay the time for performance. It is important to determine which is applicable in a particular situation.
In addition to contractual provisions, there may be codal or statutory provisions that apply. For instance, Civil Code articles 1873 through 1878 cover impossibility of performance under Louisiana law.
In some situations, the contractual provisions may have modified the default provisions provided by law. It is even possible that under some circumstances, a party may have assumed the risk of an unforeseen force majeure event.
Louisiana law, and perhaps the law of some other jurisdictions, discusses the concept of the foreseeability of the force majeure event. See, e.g., La. Civ. Code art. 1875. This may present major issues for litigation. As the Revision Comments to La. Civ. Code art. 1875 explain, "Louisiana Courts have shown more concern for the reasonableness of the parties' foresight in a particular situation than for the objective foreseeability of a particular event. . . . Thus, under this Article, the fact that an event is foreseeable does not preclude a conclusion that the parties could not have reasonably foreseen it, since they may not have thought it sufficiently important a risk to have made it the subject of a clause in the contract."
In the absence of a force majeure clause, parties to a contract are left at the mercy of the default provisions provided of law. As an example, Civil Code articles 2714 through 2719 cover termination and dissolution rules applicable to leases. La. Civ. Code art. 2714 provides that if the leased thing is lost or totally destroyed, without the fault of either party, or if it is expropriated, the lease terminates and neither party owes damages to the other. The comments to this article state that lease termination by operation of law is not inescapable. Rather, the parties may prevent such termination by inserting appropriate clauses in their lease contract.
Even when the parties insert a force majeure clause in their contracts, the contractual provision may fall in the face of th lessor's obligation to provide peaceful possession. La. Civ. Code art. 2682 provides that the lessor is bound, among other things, to protect the lessee's peaceable possession for the duration of the lease. In a recent case, the court decided that a lessee's right to peaceable possession is a matter of public policy that cannot be waived, and if the lessor fails to provide the lessee with peaceable possession, the lessee's obligation to pay rent ceases. The court also noted that no "hell or high water" clause can be used to resurrect the lessee's obligation. The court described a "hell or high water clause" as one where the lessee unconditionally agrees to make lease payments to the lessor notwithstanding any foreseeable or unforeseeable circumstances. The court stated that such clauses are generally enforceable, but not in cases where the lessor has failed to provide the lessee with peaceable possession, as peaceable possession is a matter of public policy.
La. Civ. Code art. 2715 provides that if, without the fault of the lessee, the thing is partially destroyed, lost, or expropriated, or its use is otherwise substantially impaired, the lessee may, according to the circumstances of both parties, obtain a diminution of the rent or dissolution of the lease, whichever is more appropriate under the circumstances. If the lessor was at fault, the lessee may also demand damages. If the impairment of the use of the leased thing was caused by circumstances external to the leased thing, the lessee is entitled to dissolution of the lease, but is not entitled to diminution of the rent.
Case law suggests that to be considered totally destroyed, the thing must be so damaged as to require reconstruction, as distinguished from mere repairs, seriously affecting the lessee's possession. Several cases also note that a factor in determining the level of destruction is if the thing is considered permanently unfit for use as intended under the lease contract. Additionally, the clause "according to the circumstances of both parties" suggests that each case will be determined according to individual facts. Additionally, if the impairments are caused by circumstances external to the leased thing, dissolution of the lease may be the lessor's only remedy. It is possible that the 2016 floods could fall under this clause and eliminate the opportunity for the lessee to receive a rent abatement and leave the lessee with only the remedy of dissolution.
However, the commonsense answer seems to be that if the premises are uninhabitable as a result of the 2016 floods, then the lessee's obligation to pay rent abates, and if the premises is uninhabitable for a prolonged period of time, either party should have the option to terminate the lease. Under such circumstances, neither party should be able to recover damages.
Everyone should use the lessons from the recent disaster to review their leases and analyze their positions, especially if a force majeure clause has been exercised. A carefully negotiated force majeure clause is an important tool for reducing the risk of liability associated with cancelling or terminating a sales or lease agreement in response to a disaster. An effective force majeure clause in a sale or lease agreement should take into account the unique considerations and risks that exist for the parties in their particular location. In Louisiana, that includes hurricanes and floods.