13 Mar Effects of COVID-19 on creative contracts
The human effects of the coronavirus crisis have been and continue to be enormous. Even among those not directly affected, a communicable disease crisis of this magnitude can create extreme levels of stress. Under such conditions, meeting deadlines and delivering creative work may become impossible or tremendously difficult. What does it mean when a design agreement or other creative contract requires you to perform but you are unable to do so?
One possibility is that performance may be excused by an event of force majeure. This legal concept is a defense that arises from a clause in the contract that excuses performance under certain circumstances. While there are few relevant cases on the issue, Oregon law does recognize that a force majeure clause may provide a valid defense.1 Assuming that the parties have a written agreement (something that should always be used on creative projects), the clause may be key to avoiding liability when the impact of an event like the coronavirus pandemic occurs.
A force majeure clause typically lists events that would be expected to prevent or delay performance and that are outside the control of the reasonable non-performing party. The clause may state something like this:
Designer shall not be deemed in breach of this Agreement if Designer is unable to complete the Services or any portion thereof by reason of fire, earthquake, flood, hurricane or other severe weather, labor dispute, act of war, terrorism, riot or other severe civil disturbance, death, illness or incapacity of Designer or any local, state, federal, national or international law, governmental order or regulation or any other event beyond Designer’s control (collectively, “Force Majeure Event”). Upon occurrence of any Force Majeure Event, Designer shall give notice to Client of its inability to perform or of delay in completing the Services and shall propose revisions to the schedule for completion of the Services.2
Whether a public health emergency like the COVID-19 pandemic would ultimately be considered an “event beyond Designer’s control” is a question that a court would have to determine. Such ambiguities should be avoided whenever possible to reduce the risk of the clause being interpreted contrary to the intent of the party drafting it. In one Oregon case, for example, a force majeure clause included in a purchase agreement stated only that “‘Force Majeure’ means unforeseeable causes beyond the reasonable control of and without the fault or negligence of the party claiming Force Majeure.” The Oregon Court of Appeals interpreted it such that the event argued in the case as an excuse for nonperformance was not “unforeseeable”.3
Your force majeure clause cannot possibly specifically list every such potential event with sufficient clarity to remove all interpretive doubts. If you do have the opportunity to use your own draft of the agreement, though, you should be able to balance resolving doubts about current or recent events being covered with keeping the agreement’s length manageable. One possibility would be to specifically include “public health emergency” in the definition of force majeure event. In contrast, a hiring party’s version of the clause might include only events that appear most unlikely to occur, such as a nuclear war or armed invasion, given the creative no real opportunity to rely on force majeure to excuse nonperformance.
Regardless of which side’s document is used, however, the parties’ intent as shown by the terms on which they agreed in the written contract generally controls a court’s analysis of whether a force majeure clause will apply. This means that parties should carefully draft or review force majeure clauses, which are often lumped in with other “boilerplate” provisions toward the end of a written contract and overlooked. Creative contracts should address whether an event like the coronavirus outbreak must directly affect the ability to perform or whether an indirect effect will excuse performance. The extent of the effect on performance before delay or failure to deliver becomes excusable should also be specified, along with any actions that an affected party must undertake to try to lessen the effect. The duration of an extended force majeure event before the contract is automatically terminated is another important point. As well, the ability of the affected party to seek other creative work while the force majeure event is ongoing should be addressed.
1 City of Reedsport v. Hubbard, 202 Or. 370, 374, 274 P.2d 248 (1954).
3 Water Power Co. v. PacifiCorp, 99 Or. App. 125, 129, 781 P.2d 860 (1989).