Force Majeure and COVID 19
Force majeure clause in the event of a pandemic such as the Coronavirus or other diseases that break out on a global scale.
The coronavirus, or COVID-19, is now widespread and all around us. In addition to the fact that the virus can cause unpleasant health problems, it also has an enormous impact on economic and business life. Many events or events are, mandatory or not, (still) cancelled or rescheduled. Deliveries and orders are also cancelled or parties cancel contracts. The question is whether it is legally possible to terminate an agreement on the basis of the corona virus.
The most important question that then arises is whether COVID-19 may be regarded as force majeure. Under Dutch law, this is described in Article 6:75 of the Dutch Civil Code (“A shortcoming cannot be attributed to the debtor if it is not due to his fault, nor is it for his account by virtue of law, legal act or generally accepted views”). Another term for force majeure in international contract law is ‘Act of God’.
The question whether commercial parties can invoke force majeure clauses in their contracts depends in part on the law applicable to the contract, as the concept of force majeure and its effects vary widely even in European jurisdictions.
When does a force majeure clause apply?
Many legal systems provide a definition of force majeure that applies whether or not the contract contains a force majeure clause. Important in Dutch law, in article 6:75 of the Dutch Civil Code, is the fact that the party invoking force majeure must prove that its shortcoming cannot be attributed to it, by demonstrating that the shortcoming is not due to its fault, nor by virtue of the law, a legal act or generally accepted standards. This means that if a contract under Dutch law does not specifically include a force majeure clause, force majeure can still be invoked because it is included in the law. However, the legal definition does not describe specific situations of force majeure according to the agreement. Examples include strikes, war, riots, terrorism and natural disasters which can be specifically included as a cause in
a force majeure clause. It is therefore better to add a specific force majeure clause in the contract that specifically describes which events can lead to force majeure.
In so-called ‘civil law’ countries in Europe, force majeure is also enshrined in law. The approach can vary enormously. Where in the Netherlands we have a central force majeure article, in countries such as Germany or France this is spread over several articles, sections and/or law books. In ‘civil law’ countries, where the law is leading, the government can determine whether a certain circumstance qualifies as force majeure. In China, the government has identified the Corona virus as a force majeure situation, whereby it can issue specific force majeure certificates.
In the Anglo-Saxon legal system (such as English law, or the American or Australian legal system) it is a completely different story. Force majeure is not included in the law and is not automatically part of a contract as in Dutch law. In order to be able to invoke force majeure, it is important to include this clause, with all the grounds for exclusion, very specifically in the contract. As stated above, even in Dutch law it is particularly important to define certain events specifically as force majeure, so that no discussion about them can arise at a later stage, but also because the person invoking force majeure has an obligation to provide legal proof of force majeure.
The result of an appeal for force majeure may vary from jurisdiction to jurisdiction. In the Netherlands, a debtor in a situation of force majeure shall be entitled to rescind the contract and, in principle, no performance or compensation may be claimed. In Belgium, the debtor is released from his obligation within a contract if he is unable to perform it due to force majeure (art. 1148 of the Civil Code). In concrete terms, this means that he does not have to fulfil that part of the agreement. In Anglo-Saxon law, the following legal effects may arise on the basis of force majeure, provided that the party invoking force majeure actually wished to perform the contract as if there were no force majeure: suspension of contractual obligations, non-liability, extension of the deadline for performance, renegotiation of the conditions, obligation to limit losses and the right to terminate the contract.
In the case of force majeure in particular, the question of whether the force majeure situation could have been foreseen is important. For contracts that have been concluded (including a force majeure clause) before the corona crisis becomes known, force majeure is a real possibility. If you conclude a contract now, a force majeure clause based on Covid-19 is more difficult to uphold because you were aware of this limiting factor beforehand. The only realistic possibility is to make a very specific reservation with regard to eventualities that originate in the Coronavirus and that occur at a later date of which we do not yet know which ones. Every legal system has its own solutions to this problem.
Brief advice
For contracts concluded before the corona crisis became public (around the end of December 2019), it is good to see exactly whether there is a force majeure clause in the contract and what its application is. For contracts concluded after this pandemic became known, it is important to add an effective and legally sustainable and applicable force majeure clause to your contract, taking into account all eventualities that may arise on the basis of this crisis.
