The Coronavirus COVID-19 puts mankind to the test in many ways. In addition to countless medical, social and economic issues, several legal questions also arise. This article focuses on commercial law issues and more specifically on how commercial contracts can be affected by this epidemic. What if certain agreements can no longer be executed because of the Coronavirus? Can the Coronavirus be invoked as a case of force majeure (“overmacht”)?
As in most legal matters, the answer depends on the specific circumstances and a case-by-case analysis.
FORCE MAJEURE CLAUSE?
First and foremost, it is important to check whether the agreement contains a force majeure clause.
It is of course very unlikely that the parties would have established a contractual clause in relation to the outbreak of a Coranavirus, but it is possible, for example, that they have included a general clause on the outbreak of epidemics, health issues, government measures, etc.
Such clauses are very important, both because they can extend or limit the possibility of invoking force majeure, and because they can determine the consequences in the event a force majeure would occur.
BELGIAN COMMON LAW
In Belgian law, a force majeure situation allows a party to temporarily or permanently fail to perform its contractual obligation(s) without any risk of liability, because a change of circumstances makes it (absolutely or reasonably) impossible to perform the obligation(s).
This means that to invoke force majeure, the following three conditions must be met:
1) there must be an unforeseeable circumstance,
2) which is beyond the control of the party that is supposed to perform, and
3) which makes the fulfillment of the obligation(s) absolutely or reasonably impossible.
It is important to keep in mind that the burden of proof will lie on the party which fails to fulfill its contractual obligations.
Let’s assess whether the above conditions apply to the Coronavirus crisis:
1) CAN THE CORONAVIRUSCRISIS BE QUALIFIED AS AN UNFORESEABLE CIRCUMSTANCE?
An “unforeseen” circumstance amounts to a situation that could not reasonably be taken into account at the time the agreement was concluded.
At first sight, it seems safe to say that an average person (“bonus pater familias”) could not have foreseen the outbreak of an epidemic of such a magnitude, i.e. a virus which leads to the (semi)lockdown of several countries around the world.
However, in some cases it will be relevant to determine when it became clear that the Coronavirus would have such far-reaching consequences and when the agreement was concluded. If a contract is entered into when the force majeure situation already exists, the debtor cannot invoke it as a valid reason not to fulfill his contractual obligation.
2) IS THE CORONAVIRUS CRISIS BEYOND THE CONTROL OF THE PARTY SUPPOSED TO PERFORM?
The second condition of force majeure implies that the non-performance of an obligation is not caused by the fault of the person who is in breach.
In order for this condition to be met, it is essential to be certain that the coronavirus is the exact reason for the non-performance of the agreement.
For example, the non-execution can be due to the Coronavirus as such (i.e. illness) or due to the measures imposed by the government, the so called “Fait du Prince” (i.e. a governmental intervention, e.g. when the government closes restaurants and bars, leading to the cancellation of several supplier orders). However, in some cases also (personal) precautionary measures (e.g. closing your shop even before it was ordered by the government) could be a legitimate reason for non-performance.
In the latter case, there is of course a higher potential of dispute. It is therefore crucial to maintain a clear communication with the other contracting party at all times. Again, the question whether a judge will accept “precautionary measures” as a force majeure in the context of the Coranavirus will depend on the specific circumstances of the case.
3) DOES THE CORANAVIRUS CRISIS MAKE THE FULFILLMENT OF THE OBLIGATION(S) ABSOLUTELY OR REASONABLY IMPOSSIBLE?
According to part of the Belgian legal doctrine, the unforeseen event must have made the performance of the contract “completely” or “absolutely” impossible. In this view, only insurmountable physical, material or legal impediments are accepted as force majeure.
On the other hand, the majority of Belgian scholars defend a “relative” impossibility. Meaning that a human, reasonable or practical impossibility will be sufficient.
This third condition means that there are no fair, reasonable and practicable alternatives to execute the agreement. For instance, by delaying the performance of the contract, engaging a subcontractor, finding another delivery method, etc.
Regarding the Coronavirus, it is obviously difficult to determine when this “unforeseeable event” will end; hence a delay will not always be helpful. Also the fact that this epidemic affects so many people and companies will in most cases make it very challenging or even impossible to find subcontractors or substitutes to execute the agreement. Nevertheless, even in these extreme circumstances, the debtor must do everything possible to limit the potential negative repercussions of its non-performance.
It follows from the above that the Coronavirus should certainly not be considered as a “safe harbor” for not executing agreements or commitments. The question whether the Coronavirus epidemic will qualify as force majeure with respect to your specific agreement depends on many factors, and must therefore always be carefully analyzed on a case-by-case basis.