The worldwide corona pandemic brings with it unseen scenes, also in the field of the implementation of (international) agreements. Many contracting parties invoke force majeure to justify their failure to fulfil their contractual obligations. However, to what extent is this also legally correct?
Contractual framework vs. legislative framework
First of all, it is important to establish what is contractually stipulated with regard to such a situation. After all, many agreements contain force majeure clauses, unforeseeability clauses or hardship clauses which can be invoked depending on the contractual provisions. A second step, if these provisions are included in the agreement, is to test the validity and opposability of the relevant contractual provisions. It is also important to note that these provisions do not always have to be included in the contract as such, but may also be included in the general terms and conditions or may even have been agreed upon via e-mail.
In the absence of a contractual framework, it is necessary to rely on the legislative framework. Here, it is important which national law applies to the contract and the underlying performance to determine what is meant by force majeure. If there is a clause on the applicable law in the contract, the law determined by it will in principle apply. If this is not the case, a European judge will have to look at the Rome I Regulation (Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations) even if a non-EU party is involved.
However, most countries have similar conditions regarding the force majeure legal framework. The core issue is in most cases the (absolute) impossibility to fulfil the contractual obligations, combined with an unforeseeable character at the time of the conclusion of the contract.
Contractual framework: hardship clauses
Some agreements contain ‘hardship clauses’. These will often be international trade agreements. These clauses include a renegotiation option in case of seriously changed circumstances for one of the contracting parties which make it more difficult for that party to fulfil its obligations. They are closely linked to the “unforeseeability” theory.
Hardship clauses were not accepted in Belgian jurisprudence for a long time. Recently, however, case law has started to change and it is assumed that the parties must be protected in the event of changed circumstances, especially in long-term agreements.
Invoking hardship clauses in times of corona is certainly a possibility, but in Belgian agreements these clauses do not appear frequently.
Legislative framework: force majeure, unforeseeability and lapse
Insofar as there is no contractual framework concerning force majeure or unforeseeability, one must fall back on the legal framework. The applicable legal framework depends on the applicable national law, as outlined above. In Belgium, this is as follows.
In the absence of a legal definition of force majeure, one must look at jurisprudence. Force majeure can therefore be defined as any unavoidable and unforeseeable event beyond the control of the parties which makes the performance of the contract temporarily or permanently impossible. Important here is the fact that an absolute impossibility is not required, a relative impossibility is sufficient to invoke force majeure. A definitive impossibility will result in the termination of the agreement, in which case the party invoking force majeure will not owe any compensation to the other party. A temporary impossibility will lead to the suspension of the obligations of the party invoking force majeure until the force majeure situation is no longer present.
A second possibility to discharge oneself of contractual obligations is the “unforeseeability” theory (in Belgium: “imprevisieleer”). Unforeseeability can be defined in this aspect as a serious complication or aggravation of the situation which causes a contracting party to experience a serious imbalance in the performance of the agreement. Again, the situation must be unforeseeable, unavoidable and beyond the control of the parties. Successful recourse to the unforeseeability theory will result in a renegotiation obligation between the parties, creating a new balance.
A very important remark with regard to these two possibilities is the fact that government measures taken because of Covid-19 can determine force majeure or enable the invocation of the unforeseeability theory, but Covid-19 as such cannot.
Furthermore, there is also the lapse of the contract as an unusual way of terminating the agreement. The lapse of the contract shall take effect by operation of law if one of the essential validity requirements of the contract, i.e. its object or cause, disappears. The contract will then be terminated without retroactive effect. This legal figure can also be used efficiently in times of corona if the cause of the agreement disappears as a result of measures imposed by the government. Please note that in the event of the disappearance of the cause, the creditor can no longer demand the performance of the obligation in kind, but can still demand compensation for the damage caused to the creditor as a result of the debtor’s attributable non-performance.
Importance of the obligations of the contracting parties
It is always important to see what the obligations of the party who wishes to invoke force majeure or the unforeseeability theory are. For example, it will be easier to invoke force majeure in the case of an obligation to deliver than in the case of an obligation to pay or the obligation to receive the goods. It is very difficult or impossible to invoke force majeure due to an obligation to pay if there is a digital payment option available. Furthermore, it is also important to look under which Incoterm the sale takes place when assessing the force majeure situation due to the obligation to receive the goods by the buyer.