26 Mar Suspension and termination of contractual obligations due to force majeure (COVID-19)
Do the COVID-19 outbreak and the restrictions that result from it allow for the suspension of obligations or the cancellation of a contract due to force majeure? There is no universal concept of force majeure. Therefore, whether or not a contracting party can invoke force majeure in the absence of an explicit clause in the contract depends on the existence and definition of the legal concept of force majeure under the governing law of the contract.
Under Belgian law, force majeure is a legal concept that allows the parties to suspend or cancel the performance of their contractual obligations provided that the concerned event meets the three following prerequisites: (i) to be unforeseeable, (ii) to be irresistible as to its occurrence and consequences and (iii) not to be attributable to the debtor of the obligation.
The COVID-19 pandemic may be considered as unforeseeable without necessarily rendering the performance of the contractual obligations impossible. If contractual obligations to be carried out on site can still be performed remotely (teleworking) for instance, this will not be deemed as a case of force majeure even if it results in additional costs or if it makes it more difficult to perform the said obligations. The loss of economic usefulness is not by itself a reason to release a party from its contractual obligation.
If an event is deemed to be a force majeure, one should determine whether its effects will cause a complete and definitive or temporary disruption of the contract. In the first case, the debtor is relieved of all liability towards his creditor and the contract is terminated. The accounts between the parties will nevertheless have to be settled upon the date of termination and there may be a need for repayment for instance if down payments have been made for the future performance of the contract.
In the second case, if a party is only temporarily prevented from fulfilling his contractual obligations, the contractual obligations are only suspended for the time being.
Very often parties tend to adjust the scope of force majeure in their contracts (either by maintaining the debtor’s liability in case of force majeure or, more frequently, by reducing the extent of the force majeure). It is therefore necessary to examine every contract in order to determine whether this has been the case or not.
Finally, it is important to stress out that a party who intends to invoke such a clause must first notify the other party of the existence of the force majeure and establish its cause and consequences as soon as possible. Where appropriate, this should be done in accordance with the contractually agreed procedure. Failure to comply may result in the non-applicability of the force majeure clause or in the obligation to pay compensation.
For more information on that subject, feel free to contact Antoine DECLEVE esq. (firstname.lastname@example.org).
The Cairn Legal team