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Covid-19

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

Contracts would have to be reviewed to ascertain whether the terms included in the contract cover the pandemic as a contractual excuse under the force majeure contractual clause. In the vast majority of typical Spanish agreements events such as war, civil disturbances etc. are mentioned by way of example but without limiting force majeure to other potential events. If such clause is not provided  in the contract, the Spanish Civil Code, under the article 1105 refers to the force majeure by stating that “Outside the cases expressly mentioned in the law, and those which obligation should require it, nobody shall be liable for events that could not have been foreseen or that, if foreseen, were unavoidable”.  Article 1105 would be treated as similar to an implied term of Common Law.

Aside from the above, the practical question is whether Covid 19 pandemic justifies non-compliance of the contract or not. One has to consider the force majeure case-by-case basis to ascertain whether force majeure can be invoked regarding the performance of the obligations of the parties. However if there are not enough reasons to allege force majeure, parties can also invoke the rebus sic stantibus doctrine (created by case law) that allows obligations and contracts to be reviewed or modified  when, due to supervening circumstances, the economic balance of the contract has been upset and the contract has become impossible or very difficult to perform for one of the parties. Traditionally, the Spanish courts have applied this clause very restrictedly (for instance, court rulings reject the application of rebus sic stantibus in cases of economic crisis). However, the Covid 19 pandemic is an unforeseeable event that cannot be associated with a risk that is inherent in contracts. Therefore, it is likely that this fact may allow the circumstance of each contractual relationship to be reviewed and for that purpose, it will be vital for companies to obtain as much evidence as possible to argue the economic imbalance of a party to the contract