Force majeure clauses are a hot topic in the post-Covid world. But how can you make more data-informed drafting and counsel decisions for your clients?
Professor Farshad Ghodoosi shared his substantive research of thousands of force majeure clauses and cases during an exclusive Law Insider webinar. His insights clarify how courts treat force majeure language and help you craft better clauses.
Focus on Actual Event vs Time of Contract
Professor Ghodoosi started his research with the basics: why would a client include a force majeure clause in a contract? Why not rely on common law principles?
There are two main ideas when it comes to drafting force majeure clauses, Professor Ghodoosi said. One is that, in order to invoke force majeure, you should not have been able to foresee the disruption at the time of contract. Foreseeability becomes a key basis for decisions.
However, including a list of foreseeable events may actually create an issue. If you have specific language in your contract under the force majeure clause that lists events, a court may point to that and say that you were able to foresee everything you listed. This is especially problematic when you use language like “acts of god,” a phrase so vague as to include literally every possible event. You may rely on a court to instead look at the listed events to infer intentions, but the court may not agree with your concept of foreseeability.
Hindsight bias makes everything ‘foreseeable’ to a particular judge. So the question is, are courts most likely to focus on what was foreseeable at the time of contract, or focusing on the actual event and its effects on the parties’ ability to perform?
I wanted to boil it down to factors that determine the outcome of the court. And then I noticed that we can use three predictors when it comes to force majeure: stability, control, and contractual language. -Farshad Ghodoosi Click To Tweet
There are three predictors Ghodoosi has found that affect a court’s decision: foreseeability, control, and contractual language. He also says that intent and contractual language increasingly play a determinative role in courts’ decisions during the last century.
We have more cases involving economic hardship and government action. If you want a more tailored language in your contracts, look at these two issues. -Farshad Ghodoosi Click To Tweet
As courts engage more with force majeure clauses during this pandemic, says Ghodoosi, they are more likely to look at whether the parties could control the situation rather than whether they were able to foresee the disruption at the time of contract.
Key Takeaways
Ghodoosi was able to determine that, the more courts have to engage with force majeure clauses in a post-pandemic world, the more likely they are to accept them being invoked. He also concluded that courts should be shifting more towards making sure damages go beyond restitution and cover reliance damages if the performance is excused.
He cautions against thinking that there is a perfect set of words for a force majeure clause that will work every time. No matter how the language is phrased, the courts will most likely be looking at what each party did to control the situation to the best of their ability. They will look at foreseeability to some extent, but when drafting, it’s better to focus on putting language in place which outlines the actions each party will take to attempt to control the situation in the event of a disturbance.
State courts tend to use the control factor more than federal courts. -Farshad Ghodoosi Click To Tweet
Ghodoosi gave an example of two students enrolling at a college for different reasons. One wants to attend the college because it has a beautiful campus. The other doesn’t necessarily care about the campus, but is instead enrolling mainly because of the good teachers and prestige of the school. In the event of a pandemic, classes are all moved online. Obviously, the first student will be disappointed and may want to pull out of enrolling in classes there. Whereas the second is completely fine with the way the pandemic has affected the performance of the school according to the contract. Ghodoosi says that a court may treat both of these students the same, not looking at how much each one has relied on the promise of the contract and why.
“At the contracting and drafting stage,” Ghodoosi says, “make sure that the promises or expectations of the parties are taken into account for a more balanced and equitable approach.” Knowing why a party wants to engage in the contract can help you draft a force majeure clause that will encourage a court to rule in your party’s favor.
Ghodoosi says that contract drafters may want to define excessive costs and prohibitive costs in these clauses. If a party can still technically hold up their end of the contract, but doing so would cost an excessive amount, saying up front where that line is can be helpful. He recommends a threshold or a tiered approach to make it more palpable.
The courts look at control. You want to make sure that the control factor is more specific to the best of your client's needs. If you simply repeat 'beyond the reasonable control of the party', it's not clear. -Farshad Ghodoosi Click To Tweet
Further Resources
We asked Farshad Ghodoosi for his top five resources for drafting force majeure clauses so you can find more practical help in drafting. Here are his top five resources.
- COVID-19: Drafting Force Majeure Clauses in Light of the COVID-19 Pandemic from WillmerHale
- Drafting Advice: Avoiding Disastrous Force Majeure Clauses from Lexis Nexis
- The Importance of Force Majeure Clauses in the COVID-19 Era from American Bar Association
- Force Majeure Clauses – Checklist and Sample Wording from Public-Private Partnership Legal Resource Center
- Analysis: It’s Time to Rewrite Force Majeure from Bloomberg Law
(Webinar Slides) Force Majeure Clauses with Farshad Ghodoosi
Transcript
Mike Whelan [00:00:00] All right, guys, we’re going to get started here in just a minute. Just a reminder, let us know where you’re coming from. Remember, if you want to be contributor’s on platforms like this, whether it’s a webinar or a blog post or a Contract Teardown or whatever, you feel excited to share with the community, we have the resources to help you to do that. I’m actually really excited because we figured out a whole process for and brought the resources together to create substantive ebooks. I mean, they’ll be they’ll be big guides. They’ll be really useful, handy guides for different subjects. So if there are subjects that you want to be known for, we would love to have you participate and join us. Just shoot us an email at Community@lawinsider.com, and we will be able to to share your wisdom.
Mike Whelan [00:00:47] And as an aside, I’m Mike Whalen. I wrote a book called Lawyer Forward, which you could see conveniently product placed here next to baby Yoda. You know, that’s what professionals do. So on the Lawyer Forward podcast, actually, there’s a series that I did a podcast series called The 90 Day Known Expert in which I talk about why you should share your wisdom, how sharing your wisdom builds it and creates that sort of nonexperts data. So you guys go listen to that. You’ll understand the why behind it and you’ll be excited to send me an email at Community@lawinsider.com and come and share your big brains. So what we are going to do today is a webinar about force majeure. We are in the middle. I literally got back a negative covered test today. It’s all come and the kids are about to go to school. It feels like we’re starting over. We’re all wearing masks again. So it’s getting pretty hectic here. And the force majeure cases have had enough time from early in this process to actually get through some courts. And so we brought on Professor Farshad Ghodoosi to talk to us about force majeure, the state of those cases, what’s going on in contract language, what’s working, what’s not. And yes, to Travis. We will give links later for what you’re asking for once we get started. So, Farshad Ghodoosi, Professor, if you don’t mind, I’m just going to read a quick bio. Farshad Ghodoosi, as an assistant professor of business law at David Nazarian College of Business and Economics at California State University, Northridge. He received his doctoral degree from Yale Law School, his master of law from Yale and Berkeley, and his PhD in international relations from Florida International University is Bachelor of Laws and B.A. in English came from the University of Tehran. Farshad is practiced as an attorney in global litigation and arbitration and now serves as an expert on issues related to contract law, international law and comparative law. So I’m going to do now, Professor, is actually turn the time over to you. Before I do that, I want to give you guys a couple of housekeeping things. You’re all commenting on the side on the chat, and that’s excellent. You guys can essentially talk to each other over there. That’s what’s great about that area to ask questions of the professor. What you’ll want to do is down at the bottom, there is a Q&A feature. If you will go hit that and ask a question that will make it. So I see it so that I can ask the professor the questions. And if you see a question in there that’s similar to what you were already thinking, you can upvote it. You can say, oh, I really like this question and that’ll help me know what really rises to the surface. So as we go along, ask whatever questions come up. The professor is going to share a presentation and we’ll save about fifteen minutes at the end to answer some questions. So without further ado, Professor Farshad Ghodoosi. Thank you for joining us. Why don’t you nerd out now about force majeure as you do, sir.
Farshad Ghodoosi [00:03:43] Thank you very much for your time. Thank you very much, everybody, for joining. I see around two hundred fifty people already here. That’s that’s impressive. Thanks for taking the time. And I’ll I’ll give you a little bit of background about this project and why I embarked on it. And then and then we get to the nitty gritty of this project and I’ll I’ll lay out and flesh out some of the practical implications of it for drafting and generally for contract law. That can be helpful. Obviously, I’ll go over some of the method, some of the novel method logical approaches that I’ve used. But but I promise that they don’t they they won’t be that long. So force majeure clauses, we have known them for many years. We have included them in many contracts, but we really got to grapple with them recently, obviously, in the aftermath of 2008 financial crisis and now in the aftermath of covid. So the question that that really sparked my interest in this discussion. My area of research is contract law and business lobbies, association and related areas. It’s really about how courts look at force majeure clauses and what do they do? Why do we include force majeure clauses to begin with? And I I didn’t want to just sit down and read some law review articles and some books and some doctrinal now and do some doctrinal analysis online. I actually wanted to do some empirical work based on the court’s reasoning thus far. And as you some of you may be familiar with it, we are lucky enough now that we live in a world where a lot of databases now are available that they were not available in five years ago. And one of them is this Harvard Case Law Project, which which makes case law machine readable so we can do some machine learning and machine readable analysis on on some of the court’s opinion and get and get an overall view of things. And obviously, it has its own limits. I’ll go over some of the some of my findings and the methods. We always have to be aware of the capabilities as well as the limits of these methods that we use. So let me share my slides and then and then we take it from there. Um. So I you ask me, too. OK. Is it full screen?
Mike Whelan [00:06:51] It is now
Farshad Ghodoosi [00:06:52] perfect. So the title of my article is called Contracting Risks and its forthcoming University of Illinois College of Law Law Review in twenty twenty two. And the I only really started with three main questions when I started this project. One was why do parties include force majeure clauses when you and I contract, what is really the reason that we have force majeure clauses, as you know, contracts generally? What is the purpose of a contract? Why do we contract to begin with is because I value, let’s say, the goods that are the product you have more than you do, and probably you value the cash that I have more than I do. So that’s really the very basic, simple line economics approach of contracts. And that’s why we transact, because we create this world of joint surplus. We increase supply. We make the world a better place because you get what you want, I get what I want and we move on. However, contracts serve another function and that is the the the risk allocation. We allocate risks so free and then risk allocation is a very important part of contracting.
Farshad Ghodoosi [00:08:21] So, for example, imagine I put an old car and I want to get rid of it and get a new one. I put it on Craigslist and somebody offers me ten thousand. I said, that’s great. I can come pick it up. It’s available on my driveway and the other person says, you know, it’s too late, it’s getting too late. Tomorrow I’ll come pick it up that night. There is lightning over there, the fallen tree and the car gets completely damaged. Who bears this risk of loss to risk of loss is a very important concept in contracts. And for that reason, we we enter into this world of force majeure clauses. But remember, remember that common law and many, many other judicial systems in the world and legal system in the world, they have by default notions that is very similar to force majeure. And and for example, in common law, we call it impossibility. If something is impossible to perform, we relieve the promise or of the obligation to perform. And one of the old cases is, hey, you’re going to perform. You’re a great guitar player and you’re going to perform in this and this. At this theater tonight, we have this audience and and that’s great. Come and play and we enter into agreement. There is a fire that that that theater at that place gets burned to the ground. And it’s impossible for the guitar player to play. But it’s not it’s not possible at all. Physically impossible. So traditionally in Common-Law and many other jurisdictions, we have this physical impossibility that makes the deal that that excuse the performance of a contract. If that happens, then we move towards a few. If you look at we want to look at it historically, then we move a little bit forward and we get to commercial impracticability that we have under UCC that something becomes excruciating or excessively expensive. You can still do it, but the cost is excessively high. You enter into a contract, you’re supposed to excavate a place, make it way for construction. But then there is some unusual type of rocks that just it’s just impossible to excavate. And you can but the maybe some crazy amount or with unusual tools, you might be feasible. So that is commercial impracticability. That’s another notion that we have in common law and of contracts. The other one you might familiar with it is frustration. Frustration is you can still you can still perform. But the. Very purpose of the contract is frustrated, and we know that old English case that this guy goes and wants to rent this how rents this room because it wants to see the coronation of the king, the ceremony. That’s really the only reason that person enters into that lease, because he wants to know, grab a champagne, wine or beer or coffee and look at that ceremony. The the king falls ill. And there is the ceremony is canceled. And the court says the purpose of the contract is frustrated. The purpose of the frustrate them in that context, the parties can perform, but there’s no purpose of it anymore. Another example of frustration is what happened when this guy there’s a restaurant in L.A. or somewhere and to at least a neon sign for it, for the restaurant that flashes on a burger, burger, burger. And then it was it was leased and then it was World War Two. I think there was some eminent attack. The government says all lights should be turned off at night, no lights at night because of the security reasons. So the purpose of that lease is frustrated because that person really there’s no point of of having that lease up that sign anymore. So we have all this robust theory. Why do we include for special causes? Why? So that’s one of my number for the first question that I have. The second one is, OK, let me go and look at the cases now that we can actually look at the case law and we have cases that are machine readable. I like to see how courts look at it and what are the factors they emphasize on, because when you read case law, when you read some of the commentaries, when you read the article, some say foreseeability is important. If you want an event to be considered fall under force majeure clauses, you should not be foreseeable at the time of contract. You should not have foreseen it coming. That’s why it’s Force Majeure because we are dealing with Black Swan, we are dealing with something. We did not expect it. We just saw that. Wow, I did not expect it at all. So that’s the foreseeability analysis. The other says no. We look at the language, the other says talk about control of the parties, whether parties can control the effect of it. So when you read and some others talk about causation notice and like obviously the contract language matters here, but generally at the high level, what are the main what is the main criterion, standard of analysis by courts when it comes to force majeure clauses? And lastly, I, uh, in law. It’s common that you’ve got to say some normative you’re going to have some normative contribution. That means that you have to make some suggestions. And I have suggestions about the way that the law should go and proceed in this area to be more equitable and more efficient. I will get to that at the end. But these are the three inquiries that started that that I focused on in my research. And I go one by one here to to discuss them. So why do we part why do parties include force majeure clauses? I in order to do that, I wanted to first look at the common languages used in force majeure clauses and and here databases such as the ones you find in Law Insider can be very helpful because as you know, contracting or contract clauses are sticky. That means people repeat them over and over again for a variety of reasons. There are articles about I mean, obviously probably efficiency’s one, but there’s also a behavioral aspect to it. So you see common clauses being used over and over again in different agreements. So what I did, I, I wanted to have a randomized sample and I did I use SEC filings, the material contracts portion. Also, I did some Google search to make sure that it’s randomized and and Google for some contracts in different sectors, and I collected more than a thousand clauses and I wanted to do essentially some bread and butter, a frequency of war to understand the emphasis of those clauses, especially when it comes to the wars that I care the most. What I noticed was that, you see, you have four C thirty five you have because I was focusing mainly on foreseeability control and both or none, as you see as clear from the chart, the word control appears the most. In all, this sample causes more than forceable way more than four separate. So the word control is really key when it comes to these causes. And when I use when I when I say the word control, what I mean is beyond the control of the parties, the event is of the nature that is the beyond the control of the party. So the party cannot control the effect of that of the event, the force majeure event, so that some variation of it is very common in these causes.
Mike Whelan [00:35:14] And so your next image of the events is you see these normalized straight lines of the of the average increase. And so that top, if I understand correctly, that top line that you see really increasing over time, that’s that’s your categorization for government action, which included things like regulations, government, government. Exactly. Got it. OK, and next, the next slide, you were you were looking at the reason for the intent and the language.
Farshad Ghodoosi [00:35:41] Yes. Yes. Yeah. So, yeah, you’re perfect. No, thanks for this. Clarification is quite contradictory. Questions are very helpful. So events is the next one I looked at. So I reasons the type of reasons that you see again, based on the frequency of weighted score, of the frequency of words, of the reasoning, as I explained, for stability control and contractual language. You in fact see that the intent in contractual language are on the rise. So you see more and more courts use the word intent and use the word contractual language. In these cases, however, does that doesn’t mean there’s a correlation. Correlation is different. We get to that. That’s just the trend. Now we get to the correlation analysis of these things. So, again, let’s go back to my question. My question was whether any of these events. Right, the events that we discussed, have any sort of relationship, a statistical relationship to the type of reasoning so we can say event, any type of events leads to any specific type of reasoning. Might the correlation analysis here shows that the factor control is positively related to all other variables, but only for stability and language are positively related to two of the events. So in other words, as the courts engage more with force majeure, issues are more likely deployed, a control analysis and less analysis related to foreseeability and contractual interpretation. Let me let me go to the next slide, because this just needs more explanation. Let me get to the direct effect. There is no direct effect between the type of event and reasoning, unlike what I thought at the beginning. The type of event, let’s say, strike governmental action shut down. You cannot say because we are dealing with government shut down, the courts are going to use foreseeability more or because we are dealing with covid-19, they are going to use control more or control. There is no direct there is no statistical significance there, OK. However, when it comes to indirect effect, which is what explains the relationship, mediated relationship control becomes significant in almost an all of the events. You have control as a mediating factor, not language, not foreseeability. What it means is that in statistically the result shows that control variables always medius relationship between the event type and the weight score of force majeure. In other words, the question about control explains why there’s a relationship between event and the weight of force measure. So no direct event between the event, let’s say, strike governmental action and force majeure argument. But if you can if you can see here a triangle there, it has the relationship between control, in other words, courts use control to do the analysis of force majeure clauses. OK, what
Mike Whelan [00:39:34] I want to I want to hammer that because so if I’m trying to give my client statistically informed, like, hey, here’s your risk, here’s your liability, here’s what courts are doing. What tell me tell me how I would advise you in this current environment. Right. It sounds like what you’re saying is control is the principal variable that a court will cite.
Farshad Ghodoosi [00:40:00] Exactly. Exactly. That’s exactly correct. You are more likely than any other factors out there to deal with the control language if parties are litigating for some of your costs. So if you’re drafting a contract, if you want to give advice, you have to think about the way you phrase the control. And if you phrase it and how you phrase it in your contractual language, if you do not phrase it, there is a likelihood similar to the as the as my study shows, that the courts engage in controlled analysis no matter what they did to see and the party control the factor of enough. If you’re going to draft it, then you want to you want to maybe limit or sort of sort of Morphet in the way you like. You say, you know, if the if if if you can say maybe beyond the control of the parties, dot the next sentences. If dealing or not dealing with the effects of the force majeure, is it still within the control, but is it excessively costly that is still falling?
Mike Whelan [00:41:14] Yeah, I was I was going to say there’s a question from John Foster that I think is is interesting and relevant to this. He says he represents clients. The plan meetings, conventions, trade shows. They sign contracts, performances a year or two out the issue. Timing is another factor. The meeting planners can’t wait until the day of the meeting. Like I’m assuming that that has more to do with foreseeability, right. Like that. If you’re three days out, I mean, come on, you you know, you’ve known about this thing for the last year. You could have prepared for this when you add these other factors or are you seeing trends that change that for a bit specifically? Obviously, what everybody’s thinking about is, you know, covid is much more foreseeable. Now, should I be including that in contract? Should we be hammering that out in our negotiations? Should we make that clear? It sounds like what you’re saying is even the foreseeability of that specific event is not going to be the determining factor. It might change behavior to your earlier point. Right. But it doesn’t sound like the courts are going to really have that’s very different.
Farshad Ghodoosi [00:42:16] So we still are going to see a lot of covid cases coming. I mean, there are they’re cases, as you know, being litigated now. So maybe that’s going to change in my analysis in two years time. But what I can tell you now is that do not the data don’t think the language is that exists out there and are being replicated are sort of this perfectly packaged language then then that that you don’t have to deal with when it comes to litigation, because it seems that the courts, based on my analysis, look at the control, they look at the foreseeability, but the plays a huge factor on control and I’m going to actually explain this, maybe that’s also helpful to answer some of the questions when it comes to jurisdiction. Remember, my analysis is we have more force majeure clauses in federal courts than any other jurisdictions, obviously. And after that, Louisiana, Texas, New York, Puerto Rico. So essentially a lot of cases that determined force majeure clauses announced as we know it, coming from Puerto Rico, New York, Texas, Louisiana. And this is a slide that might be helpful for some of the questions that you raised earlier as well. It also depends where your case end up, because I ran the a moderating effect on the cases, and it shows that the control factor is much stronger in state courts. In other words, state courts tend to use the control factor more than federal courts. So maybe in federal courts they pay more attention to contractual language for stability. But state courts really shift my mind. My analysis suggests that show placed more emphasis on the control factor. And again, quickly back to what you what you asked me, Mike, earlier is really what what people have to be cognizant of is to the extent they can be, they make the contract language more specific. Exactly. They want they probably want to avoid terms like beyond the controls of the parties, because then you are in this realm of that I’m talking about, you can be more specific beyond the control of the parties. What does it mean, foreseeability? What does it mean? Explain, elaborate at what level it becomes beyond the control of a person and what level it falls below that level. And then by doing that, you can avoid some of the incompleteness of contracting that we have
Mike Whelan [00:45:04] as it we’re coming up. I want to make sure that we have time for questions. But I’m looking through your slides and I’m I’m seeing the results summary and your last inquiry, which I think is really important, which is what’s the best way to do this. So if I can get you to jump to those so we can wrap that up and then we’ve got some really good questions that I think might ease
Farshad Ghodoosi [00:45:22] some of the things. I’ll give some of the other ones. I’ll get to my last inquiry, which is what is the most efficient and equitable approach. What essentially here I tell you in two minutes, maybe five minutes max, what I’m saying, imagine to college students the first college students go and see the college campus, look at the facilities, like at the gym, look at the pool. They say, I love this college. I’m going to enroll in this college. I love the facilities. Go and rent a place close to campus. The other one doesn’t care about any of that, just cares about the reputation of the school, goes and enrolls in that school. Covid happens, they both have to take the classes online. OK, both Sue to get the tuition back and based on the force majeure clauses and other factors, the law, as it stands, treats these two students the same. We do not care about promises, expectation from the contract. The focus of force majeure clauses historically and now has been on prom Esau’s ability to control and foreseeability. We do not that we do not care as much about the promises. What I’m here about, I’m explaining here and I talk about the Columbia University’s case that is ongoing litigation and in a few other cases, Gap I still a gap is we have to move away from this zero sum game. You either excuse a party from performance or they have to perform and then you focus on from the source, mainly in this context. What I say is that we need a more balanced approach by taking into account promises, a reliance on the contract. Remember those two two college kids? The first students wanted to enroll because the person they love, the facilities, the second one didn’t care the law twice in the same way, when it comes to force majeure, either they are relieved or not relieved. The outcome can can be different depending on the court. But what is important is that we do not care and B, do not distinguish the two because we don’t care about the degree of reliance. Our problem is C on the contract in the force majeure clauses, and that’s what I suggest normatively the court should do and maybe at the contracting and drafting stage, that’s something that lawyers can enter into contracts as well to make sure that the promises or the expectations of of parties are also taken into account for a more balanced and equitable and efficient approach. Can I stop here?
Mike Whelan [00:48:20] That’s awesome. Thank you. And if I remember right, you have a draft version of this paper up on SSRN. And right now I think and we’ll make sure to include that for you guys if you can get the full information. At this point. We’ve got questions. They’re digging more into the substance. I know, obviously, you were doing a quantitative analysis of sort of what’s a trend. But there’s also some substantive questions as well. And so we’ll get to those. Just remember, guys, we’ve got about 12 minutes. You can ask questions in the Q&A section below at the bottom of your resume screen and you can upvote the questions that have already been asked. So I know which ones to go through. And what I’m going to do is just sort of go from the top, the most popular ones, and move my way down. So, Professor, and if some of this stuff is outside the scope of your research or whatever, feel free to answer that and we’ll take that as a signal that we need to add some more resources to Law Insider later to answer some of these questions. So Brian Schmidt says and Lisa Sahili responds to back it up. Have you observed any trends in a SaaS solutions provider carving out subcontracted third party data center failures? Argument for doing so? Data centers have become ubiquitous and are akin to a utility provider or data center, failures considered within a party’s reasonable control. So it sounds like this control element that you principally focused on. First part is any idea, any kind of trends, anything you’re seeing on on third parties and what was within the reasonable control of the contracting parties?
Farshad Ghodoosi [00:49:50] That’s that’s an excellent question, I probably don’t have a very satisfactory answer to it now, but what I have seen is when it comes to third party, that’s that’s really something that the courts really don’t buy into that to the extent I have seen it. Not in this context specifically because that depends the depends how the party allocated risk in the contract, especially when it comes to third party performance. That may be a bit beyond the foreseeability sorry, the force majeure clauses that may lead to a government shutdown and all that. So that’s something that I probably I probably have a satisfactory and definite answer to it now.
Mike Whelan [00:50:44] Yeah, Concepcion asks more, maybe more, general question that you had addressed very early in the presentation, is there a way is there a formula to determine commercial impracticability?
Farshad Ghodoosi [00:50:58] Obviously, the more the more specified you are, the better in terms of because commercial impracticability mean the one you notice when you look at the cases are referring to the to the cost. And an excessive cost is something that you you see a lot in court cases. So you want to maybe define excessive costs and prohibitive costs. And at what level do you believe that performance becomes prohibitive, prohibitive due to excessive costs? And that’s something that maybe you can I have I have a threshold or a tiered approach to make it more more palpable. Obviously, the excavation example that I gave at the beginning, that’s an example of a case, but that’s something you can definitely more narrow, more based on the parties negotiation and and drafting.
Mike Whelan [00:51:58] John, ask the question and we’ve addressed it a little bit, but I think he’s got an interesting twist on it. What are your thoughts when a vendor or supplier proposes, including epidemic or pandemic, as a force majeure event in a supply agreement? Meaning does that specificity like would you as the contract the buyer, would you prefer to not have that kind of specificity in there? Does that create once you are literally force, you’re defining the foreseeability? Does that change the control analysis? Would you include that kind of language in a supply agreement?
Farshad Ghodoosi [00:52:31] If the vendor and supplier propose a pandemic, obviously, and if you’re the you’re receiving it, so that’s something that they want to make sure that they don’t have to perform when there’s a pandemic or an epidemic and or at least they’re not in breach when that happens. So it’s really depends on your negotiation, negotiation, power. Sometimes what I think a parties can do generally in force majeure clauses is to have some exposed exit ramp that you don’t see often say, well, if something of this nature happens, let’s engage in good faith negotiation, let’s reform the contract in this or that fashion. Let’s suspend the obligation until a later date. Because another problem is sometimes if it’s a total excuse, the contract ends. Sometimes you just want to suspend it until that pandemic and then make that problem is is resolved. And then that party still is under the obligation to perform. If you have it, if you include it as such, when those things happen, gone, zero sum game, no obligation. The end of the story, you want to have some via media or sort of a third approach that opens the door if things of this nature happen happens.
Mike Whelan [00:54:02] A friend of the show, the Contract Teardown show and Contract Teardown star Eric Drattell ask the question. Isn’t it simply correct to say that parties this is getting back to your question about is the common law enough? Why why do we even have these clauses? Isn’t simply isn’t it simply correct to say that parties include a force majeure clause in their contracts to allow the occurrence of certain events, which wouldn’t qualify as a force majeure event under common law to excuse performance? So if I’m understanding Eric’s question right, it sounds like he’s saying like you put the force majeure in there because you’re trying to create an extra, like you said, escape hatch for the stuff that wasn’t common law e but now, by starting to list that stuff, have you created for yourself the obligation to list all the things right rather than relying on the Common law? What’s what’s your sense now that you’ve done this research on why do we even do this? Why do we use force majeure?
Farshad Ghodoosi [00:54:59] That’s actually an excellent question. And here here here’s a very brief answer. Why do they then include acts of God? I mean, traditionally acts of God when especially destroy the subject matter of the contract, that is the bread and butter of force majeure clauses. But we still have acts of God in force majeure clauses. We still say earthquakes. We still say lightning. We still say tsunami, all of those things. So we include that. And so if the purpose was to expand the type of events that’s covered, I think maybe maybe that was some purpose at the beginning, but probably not any more. Specially that even Common-Law moved away from this type notion of physical impossibility and expanded it to commercial impracticability frustration, a like so that maybe a partial explanation in the past. But I don’t think that’s a full explanation,
Mike Whelan [00:56:04] doctrinal question from Sylvia, that that actually might be the next level of your research, because there’s language like maximum extent and best efforts. Sylvia asked with respect to duty to minimize the impacts, to what extent the party invoking force majeure must endeavor to mitigate or minimize the impacts. Do they have to use reasonable efforts, best efforts? What if it’s too expensive but not impossible? Sillier than ads? I’ve seen many contracts with the to the maximum extent language would courts imposed best efforts in this case, or can the party invoking force majeure still rely on reasonable efforts? So again, it sounds like the adding of force majeure clause might actually create a next level problem for you.
Farshad Ghodoosi [00:56:48] Exactly, exactly. And that that’s something that I have to that’s a great question to, as you mentioned, for the next project. I did not see it in the clauses that I looked at. I did not see it in some of the cases that I looked at, even if that I don’t know what big of a trend is, but to the extent that it’s a trend, I think those terminology that you mentioned, again, it’s opening a Pandora’s box of having all sorts of new inquiries or new analysis of what’s the maximum, what have you done the maximum effort, what’s the reasonable effort to not offer, but. That’s something they really have to dig into more systematically and rigorously.
Mike Whelan [00:57:41] Sorry, I’m filtering through a couple because we just have a couple of minutes, I’m just looking at the other questions to see what jumps up. Michael Purvis, none, ironically, says this is all very academic while I’m speaking to an academic. Everyone knows that control and force, the ability of language must be addressed in force majeure clauses. Can you get to suggestions about language to be inserted in real world force majeure clauses? So going back to that dictionary of terms that you had that were arising, I guess I’m sort of wondering is like since control is the the the thing that really courts are relying on, are there words that you can use in that dictionary, in that list that will satisfy that control? You know, what kind of words should we be adding? Which, again, that that might be a list that we can provide later, but it’s not a bad question. Michael’s obviously trying to get to the practical
Farshad Ghodoosi [00:58:33] like what do I do with this? To Michael? I respond to three things. One is, yes, it’s academic to what what really does research on these part of it shows is the level of emphasis that the courts put on which factor, because you can put three factors for factor, foreseeability and then language. But the courts look at control. And that’s something that that is very helpful at the drafting stage when you know that the emphasis of the court has been so far mainly on the control factor. You want to make sure that the control factor there is more specified to the best of your client’s needs. If you just simply repeat beyond the reasonable control of the party, you’re again going to this vortex of the cases that it’s out there. Not clear. You want to specify how do I make it more palpable, more more concrete when it comes to what is a reasonable control of a party? How do I define it? Maybe even get rid of this language and make it more say if if if this event happens and I incur 10 percent, 20 percent, 30 percent of the cost. And that’s that’s that’s that’s beyond the control and and not done, then I’ll excuse something to that effect.
Mike Whelan [00:59:55] Got it. Well, I appreciate it. And obviously we can continue to have this conversation. I’ve got more questions. I’ve got questions myself, much less in the open Q&A area. We think that there’s maybe maybe, Professor, there’s a conversation to be had about, hey, we’re gathering a bunch of data so that you can advise your clients well about what are likely outcomes. It sounds like what you’re saying is none of this data should be interpreted as if you put magic language X into a contract, then magic outcome Y will happen. I mean, again, that may be obvious to people, but it sounds like you do your lawyer do not have an obligation to find the magic language. It does not exist. Right. Your job is to do your best to to to say what needs to be said to to give you an argument when the time comes. But if people want to follow up with the professor and learn more about this area, obviously the paper unnecessary and I included the link in the comments will included it line set up camp such resources. What’s the best way for people to reach out to you to really dig into this?
Farshad Ghodoosi [01:00:56] Absolutely. My my my email is available on the my website, Farshad.Ghodoosi@csun.edu. Also I have my Yale email that I always use Farshad.Ghodoosi@aya.Yale.edu I’m available. I’m more than happy to connect. I’m on LinkedIn, Twitter and please feel free to shoot me a message and I’m happy to continue this conversation.
Mike Whelan [01:01:25] Well, thank you, Professor. Thank you all for joining. And we will see you next time. We’ll give you more information, pay attention to your email. Stay tuned to lawinsider.com/resources Again. Let me know if you want to be a contributor of any kind, something academic like this, but also the Contract Teardown show where we just make jokes and pick on contracts, blogs, e-books. We have ways for you to contribute. If you’d like to just reach out to us at community@lawinsider.com. We’ll see you guys next time. Thank you again, Professor.
Farshad Ghodoosi [01:01:53] Thank you. Have a nice day.
