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Covid-19

To what extent is the Covid-19 pandemic considered a “force majeure” excuse in contractual relations

According to relevant literature and legislation, provisions governing force majeure (vis major) of the Act No. 89/2012 Coll., the Civil Code (hereinafter referred to as the “Civil Code”) are only applicable “if there is such a substantial change in circumstances that it creates a gross disproportion in the rights and duties of the parties by disadvantaging one of them either by disproportionately increasing the cost of the performance or disproportionately reducing the value of the subject of performance, the affected party has the right to claim the renegotiation of the contract with the other party if it is proved that it could neither have expected nor affected the change, and that the change occurred only after the conclusion of the contract or the party became aware thereof only after the conclusion of the contract. Asserting this right does not entitle the affected party to suspend the performance. (Article 1765 of the Civil Code)

Substantial change in circumstances could be seen e.g. as any essential political change, limitations or restrictions on economy, legal aspects or even epidemics and quarantines.

Such substantial change must, however, affect and interfere with rights and obligations of the contractual parties so the argument itself is not sufficient and it must be proven that rights and obligations were not held in balance. Also, substantial change is only relevant if it occurs after the contract was concluded. Substantial change of circumstances is not applicable if the debtor already failed to perform his debt properly and in due time (and therefore being in default) before such change in circumstances occurred.  

A tortfeasor is released from the duty to provide compensation if he proves that he was temporarily or permanently prevented from fulfilling his contractual duty due to an extraordinary, unforeseeable and insurmountable obstacle ( = substantial change) created independently of his will. (Article 2913 of the Civil Code)

We believe the same could be applied in the international trade as stipulated in the United Nations Convention on Contracts for the International Sale of Goods 2010 (“CISG”):

A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences. (Article 79 of the CISG)

Based on the above mentioned is safe to say that COVID-19 pandemic is an exceptional and insurmountable obstacle (force majeure) and should be therefore taken into account in contractual relations.