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International Sales Contracts - COVID-19 Pandemic and Force Majeure

Q: What is force majeure in the context of a contract?

A: Generally speaking, a force majeure clause is a contract provision that relieves a party from performing its contractual obligations when certain circumstances beyond its control arise, making performance inadvisable, commercially impracticable, illegal, or impossible.

Q: If a party enters into an international commercial contract and the COVID-19 pandemic has prevented or delayed performance by such party, is such party excused from performing?

A: It depends. Does the contract for sale of goods stipulate that the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) is the determinative governing law, or, by default the CISG governs?

The CISG generally applies if the parties to a contract are from different signatory countries (unless the parties expressly waive its applicability), or when private international law provisions default to the CISG. The United States is a signatory country to the CISG.  Specifically, CISG Article 79 provides that “[a] party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences.” The treatment of impediment under the CISG is different from the treatment under common law (see below). Generally, four conditions must be satisfied in order for a party to assert the force majeure protection under the CISG. First, the impediment must be beyond the party’s control. Secondly, the impediment is unforeseeable at the time the contract was signed (thus, a party probably would not prevail in court if it enters into a contract today and claims that it cannot perform under the contract due to the COVID-19 pandemic). Thirdly, the impediment and its consequences could not be reasonably avoided or overcome. Lastly, the non-performance of the party is the result of the impediment.  

Q: What if the contract does not contain an express force majeure clause or the CISG does not apply to the contract?

A: Consider other options under U.S. law to excuse non-performance.

Under Article 2 of the Uniform Commercial Code (“UCC”) (Section 2-615), a seller may be excused from delay or non-delivery of the goods if performance “has been made impracticable” by either (i) the occurrence of an event “the nonoccurrence of which was a basic assumption on which the contract was made” or (ii) good faith compliance with foreign or domestic government regulation. Can the COVID-19 pandemic and/or compliance with the governmental health orders be used to excuse performance under the UCC? Perhaps, but analysis should be done on a case by case basis.

The common law doctrines of “frustration” and “impossibility” may be invoked, but they have higher thresholds to overcome. Additionally, states in the U.S. apply different treatments of these concepts.

Some jurisdictions focus on whether the impossibility of performance was foreseeable at the time the contract was entered. Additionally, the contract must be consummated based on the assumption that the event (which rendered performance impossible) would not occur. Some states expand the impossibility defense to include the doctrine of impracticability (see the UCC discussion above).

The doctrine of “frustration of purpose” generally provides where the breaching party finds that the purposes for which it bargained have been frustrated to the extent that the breaching party is not receiving the benefit of the bargain for which it contracted; i.e., the frustration destroyed the purpose of the contract. Some jurisdictions also require that an event resulting in such frustration of purpose is unforeseeable and beyond the parties’ control.

If you have any questions about force majeure, please contact Robert Q. Lee at rqlee@bmdpl.com or 407.232.6881.

Explosive Growth in Pot of Gold Opportunity for Bank (and Other) Cannabis Lenders Driving Erosion of the Barriers

Our original article on bank lending to the cannabis industry anticipated that the convergence of interest between banks and the cannabis industry would draw more and larger banks to the industry. Banks were awash in liquidity with limited deployment options, while bankable cannabis businesses had rapidly growing needs for more and lower cost credit. Since then, the pot of gold opportunity for banks to lend into the cannabis industry has grown exponentially due to a combination of market constraints on equity causing a dramatic shift to debt and the ever-increasing capital needs of one of the country’s fastest growing industries. At the same time, hurdles to entry of new banks are being systematically cleared as the yellow brick road to the cannabis industry’s access to the financial markets is being paved, brick by brick, by the progressively increasing number and size of banks that are now entering the market.

2021 EEOC Charge Statistics: Retaliation & Impact of Remote Work

The U.S. Equal Employment Opportunity Commission (EEOC) released its detailed information on workplace discrimination charges it received in 2021. Unsurprisingly, for the second year in a row, the total number of charges decreased as COVID-19 either shut down workplaces or disconnected employees from each other. In 2021, the agency received a total of approximately 61,000 workplace discrimination charges - the fewest in 25 years by a wide margin. For reference, the agency received over 67,000 charges in 2020, and averaged almost 90,000 charges per year over the previous 10 years.

Ohio’s Managed Care Overhaul Delayed – New Implementation Timeline

At the direction of Governor Mike DeWine, the Ohio Department of Medicaid (ODM) launched the Medicaid Managed Care Procurement process in 2019. ODM’s stated vision for the procurement was to focus on people and not just the business of managed care. This is the first structural change to Ohio’s managed care system since the Centers for Medicare & Medicaid Services' (CMS) approval of Ohio’s Medicaid program in 2005. Initially, all of the new managed care programs were supposed to be implemented starting on July 1, 2022. However, ODM Director Maureen Corcoran recently confirmed that this date will be pushed back for several managed care-related programs.

Laboratory Specimen Collection Arrangements with Contract Hospitals - OIG Advisory Opinion 22-09

On April 28, 2022, the Department of Health and Human Services, Office of Inspector General (“OIG”) published an Advisory Opinion[1] in which it evaluated a proposed arrangement where a network of clinical laboratories (the “Requestor”) would compensate hospitals (each a “Contract Hospital”) for specimen collection, processing, and handling services (“Collection Services”) for laboratory tests furnished by the Requestor (the “Proposed Arrangement”). The OIG concluded that the Proposed Arrangement would generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”) if the requisite intent were present. This is due to both the possibility that the proposed per-patient-encounter fee would be used to induce or reward referrals to Requestor and the associated risk of improperly steering patients to Requestor.

Property Owner Protection from Tax Valuation Challenges

New legislation provides significant new protections for commercial property owners against challenges to valuation primarily by local school boards and prohibiting side agreements to avoid tax valuation changes. The Ohio Legislature has approved House Bill 126 which will go into effect July 2022 but will effectively apply to the 2023 tax valuation year.