COVID-19 and its repercussions on existing contracts: can you invoke force majeure?

On 12 March 2020, the World Health Organisation (WHO) categorized the outbreak of Covid-19 (Coronavirus) as a pandemic. The impact of the virus on society and the economy will be catastrophic. Many countries are strengthening their measures, which leads to lockdowns and mandatory closings of schools, public services and businesses.

This pandemic and its consequences on economic life leave many companies with a lot of questions. One of these questions is: to which extent should contracting parties continue performing their obligations under an agreement and when can a contracting party be excused from these obligations?

This blogpost aims to provide you with the relevant insights on the concept of force majeure and a first guideline on how to analyze your own contractual situation.

The concept force majeure

The legal base of force majeure is foreseen in the Belgian Civil Code (BCC), but as the law does not provide for a definition, the analysis of whether a situation is considered as force majeure will be done on a case-by-case basis, in accordance with conditions and principles developed by case law and doctrine.

As the legislation on force majeure is not mandatory, parties can modify and regulate its definition and consequences contractually. This is often the case.

Therefore, the first question you have to ask, is whether your contractual framework (in principle consisting of a contract and/or general terms and conditions) contains a force majeure clause.

If no force majeure clause is foreseen in the contract or terms and conditions

If no clause on force majeure is foreseen in the contract or terms and conditions, then the general rules in the BCC, supplemented by Belgian legal doctrine and case law apply.

A case of force majeure then presents itself when one of the contracting parties is (temporarily or definitively) unable to perform its commitments under the agreement, due to an extraneous event, not attributable to that same party, and unforeseeable at the time of entering into the agreement. If a force majeure event occurs, a party will be released from its contractual duties without having to pay damages.

In general, the following two conditions have to be met in case of force majeure:

  • The event leading to the impossibility to perform the obligation may not be due to or related to a fault (even minor) of the contracting party invoking force majeure. This implies that the force majeure event and its consequences must have been unforeseeable at the time of entry into the agreement, and that no measures could have been undertaken to avoid the event.
  • The invoked event (in this case the pandemic Covid-19) must render performance of the contractual obligation impossible; this means that an insurmountable impediment to the performance of the contractual obligation must be present. Recently, a broader interpretation of the impossibility requirement has also been defended, arguing that a normal, practical or reasonable impossibility should suffice to fulfil the impossibility requirement. Such judgement will again have to be made on a case-by-case basis and, in case of discussion, a judge will decide. Current case law and doctrine are still aligned that it is in any case not sufficient when the performance of a contractual obligation is merely rendered more difficult or more costly.

In principle, the force majeure concept also applies to contractual obligations to pay an amount of money. However, following this second condition, the performance of such obligation will not easily be deemed impossible and therefore the qualification as force majeure will not be upheld in many cases.

Applied to the current situation following the outbreak of Covid-19, a contracting party is likely to successfully invoke force majeure if (i) the performance of its obligation became impossible because of the pandemic (and/or related governmental measures), (ii) it concluded the relevant agreement before the outbreak of the epidemic (rendering the event unforeseeable), and (iii) it took all reasonable measures – to no avail – to ensure performance of its obligations after the Covid-19 outbreak.

The burden of proof is borne by the contracting party claiming to be released due to a force majeure event. That party will therefore have to prove that the abovementioned conditions are fulfilled.

If the impediment is temporarily, performance of the contractual obligations will only be suspended as long as the force majeure event exists, unless performance would no longer be useful to the other contracting party. If the force majeure event makes it permanently impossible for a contracting party to perform its obligations, this will result in a definitive release of these obligations and its liability, without having to pay any damages.

If a force majeure clause is foreseen in the contract or terms and conditions

In practice, force majeure events and their consequences are often defined in the agreement or the applicable general terms and conditions. Companies are advised to check these clauses before invoking the coronavirus situation as force majeure, as this clause might alter or clarify the definition of force majeure and its implications. Further, parties might have to comply with specific notice requirements.

In summary, if the current Corona situation has impacted your, or your contracting party’s possibility to perform under a contract, we advise you to (i) read the relevant clauses of your contract or the applicable terms and conditions carefully, or (ii) if these are not foreseen, assess whether the abovementioned basic principles of force majeure have been met.

We do recognize that, for example in case of a pandemic, you might also want to consider looking for a commercial solution outside the scope offered by force majeure, for example if you have a long-term relationship with the other contractual party. Parties can always agree to adopt other measures which suit their specific situation best, in which case we advise you to confirm such deviating agreements in writing.

In any event, please do not hesitate to contact us if you need more information on this topic or if you wish to discuss the force majeure regime applicable to your contractual situation.