Contract non-compliance and the coronavirus: is this a case of force majeure?

More and more companies are facing problems due to COVID-19, the disease associated with the coronavirus.

One major problem is that the production and transport of goods from China are currently at a low level. As a result, Coolblue has increased prices in its webshop, and Blokker is not receiving products. Action and various supermarkets are facing similar problems. Now that the coronavirus has also been detected in the Netherlands, the consequences may become even greater.

This begs the question: can the suppliers of Coolblue, Blokker and Action successfully invoke force majeure? Or will they be receiving claims for breach of contractual obligations?

What is force majeure?

According to the law, force majeure refers to an event that makes it impossible to comply with an agreement. Such an event must be beyond the control of the supplier. An appeal to force majeure must always be assessed on the specific circumstances of the case.

It is not unusual to include a definition of force majeure in agreements or general terms and conditions. In this way, the term can be narrowed or extended. Since it is also possible to designate epidemics as force majeure in an agreement, it is important to check all agreements for any definitions of force majeure.

But even without specific arrangements on epidemics, there are various grounds for considering the coronavirus as force majeure:

• The China Council for the Promotion of International Trade has designated the coronavirus as force majeure for Chinese contract parties.
• In 2005, a Dutch court ruled on the bird flu epidemic, in which an appeal to force majeure was honoured.
• In general, epidemics are beyond the control of contract parties and not foreseeable.

Although this provides a strong basis, it is not possible to give an unequivocal answer to the question of whether the coronavirus constitutes force majeure.

Non-compliance causes in agreements should be checked. It is possible, for example, to make a distinction between a government measure related to the coronavirus ("ban on transport of specific goods by air") and factory stagnation due to illness of personnel. This distinction could determine whether the direct cause of non-compliance with agreements comes under the definition of force majeure.

Also important is whether there are reasonable alternatives for compliance. If air transport is not possible, this may not mean that transport cannot take place in another way. In light of circumstances like these, it is possible that one case may involve force majeure while another does not.

Consequences of force majeure

The result of a successful appeal to force majeure is that compliance cannot be required and, in principle, no compensation is due. It is also possible that a party has the right to make partial deliveries or increase prices. This depends on the terms of the agreements in place.

Whether this entitles the other party to terminate the agreement depends on whether the shortcoming is serious enough to justify termination. It is also possible that the other party is authorised to order the products elsewhere. This, of course, also depends on the terms the parties have set down in the agreement.

Conclusion

So far, it appears there is no court ruling yet on whether the coronavirus can be considered force majeure. Should this come up in a particular case, the court will base its ruling on the actual circumstances and the legal agreements between the parties.

In such a situation, it is important to review carefully the contractual agreements and to find out the exact cause of non-compliance.

For the future, it is important to include a clear definition of force majeure in agreements and the general terms and conditions. The consequences of force majeure must be clearly formulated to prevent discussion. In this way, all parties will know where they stand.

For more information on force majeure and the coronavirus, contact your usual CMS advisor or local CMS experts.