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Contracts & Corona: force majeure and related topics

Contracts & Corona: force majeure and related topics

Contracts & Corona: force majeure and related topics

23.03.2020 BE law

The spread of the coronavirus may have some consequences that affect your ability to perform your obligations under your contracts, or your co-contractors’ ability to perform theirs. We provide some insight on a few pressing questions.

Does a debtor still have to honour its contract when this has become impossible, for instance due to government measures?

In order to be freed from performing its contract without being liable for damages, a debtor will have to prove force majeure. The question arises when one can rely on force majeure.

As a general rule of thumb, you should first check the contract for any provisions governing force majeure. These provisions could specify the rules of general contract law and may either restrict/exclude or extend the possibility to invoke force majeure. They may also give further guidance on what a debtor should do when it wants to invoke force majeure, and/or what the consequences will be.

If no contractual provision exists, the debtor will have to rely on the rules of general contract law and prove the following:

  1. It has become impossible (and not merely more onerous) for the debtor to perform the contract. Measures ordered by the Government that render it (legally – this is the so-called Fait du Prince – or practically) impossible to perform the obligations under the contract may amount to force majeure.

    However, mere negative advice given by the government to the public (such as negative travelling advice) may on the other hand not meet the high threshold of impossibility. Also, an obligation to pay money is in principle never impossible to perform.
     
  2. The force majeure event was unforeseeable at the time of the conclusion of the contract.
  3. The debtor could not reasonably avoid the force majeure event, nor was it the cause of this event.

It is evident that any of these requirements will have to be assessed on a case-by-case basis.

Force majeure will not exonerate a debtor if it was already in default before the event occurred and the creditor had put it on notice.

Please note that the above answers are based on the rules of general contract law and that in specific fields (e.g. travel contracts, air transport contracts, public procurement contracts etc.) specific rules may apply.

What happens if the impossibility caused by the force majeure event is temporary?

The debtor will be released temporarily from performing the contract until such performance has become possible again. In the meantime, the co-contractor may suspend the performance of its own obligations too.

However, if the parties can no longer usefully perform the contract when the impediment is lifted, e.g. because time was of the essence, the impossibility caused by the force majeure event must be deemed permanent (see next question).

What happens if the impossibility caused by the force majeure event is deemed permanent?

The force majeure event will definitively release both parties from performing their obligations. The agreement will automatically lapse (unless the contract can live on without the affected obligations).

For instance, as a service provider, you will not have to provide the service, but will, in principle, not be entitled to payment either. You will have to reimburse any advances you may have received to the extent that no services were rendered. However, under certain circumstances, other solutions may prevail. It should also be noted that specific rules apply regarding contracts transferring specific and ascertained property.

What steps should the debtor take when performing its contractual obligations has become impossible due to force majeure?

The debtor should notify its co-contractor (in writing) that force majeure precludes it from performing the contract, explain why it constitutes force majeure and indicate the ensuing consequences.

Moreover, the debtor must also take reasonable measures to mitigate the damage of its co-contractor.

Does a debtor still have to perform its obligations if such performance is not per se impossible, but merely (significantly) more onerous?

As pointed out above (see first question), the mere fact that obligations have become more onerous does not entitle a debtor to invoke force majeure under Belgian law. In some foreign jurisdictions, the opposite solution (known as the doctrine of hardship) is accepted, but hardship is not available under the Belgian rules of general contract law.

However, many contracts include hardship clauses.  In addition, if you can demonstrate that no reasonable person placed in the same circumstances would insist that a debtor performs certain obligations, a judge may rule that a co-contractor's insistence amounts to an abuse of right. The judge may then order it to act like a reasonable co-contractor.

A so-called “innocent" debtor (i.e. a debtor not responsible for its default) may always request a moderate grace period from the judge. It will never be automatically entitled to this, but the judge may freely decide on such a request and may be especially receptive to it in the current circumstances.

 

This article provides some general insights on different legal questions. These insights do not constitute legal advice and may not be relied upon as if they were legal advice. The outcome of any legal analysis will strongly depend both on the specific facts and circumstances of each case and on the particularities of the sector and legal relationship involved. Our legal experts in the various domains concerned are available to assist you with the analysis of your questions and provide specific advice tailored to your case and circumstances.

Team

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