Because of the current COVID-19 crisis that has influenced all countries in the World, there will, and already is, a fair amount of people and businesses calling out on force majeure (lat. vis maior). It is incredibly important to understand the concept of force majeure as it has a direct impact on conducting business and fulfilling contractual obligations.
Prior to understanding today’s concept of force majeur in continental Europe, we must understand where force majeure comes from. As for most continental European legal institutes, the origin can be found in Roman law. Roman lawyers defined vis maior as an accidental event that cannot be foreseen, avoided or averted. Under the term vis maior Roman lawyers understood earthquakes, floods, storms, bandit raids, enemy intrusion etc. The general rule was that no one was responsible for the cases of vis maior (lat. casus a nemine praestatur).
Taking a brief look into how exactly today’s provisions look like (in Germanic and Romanic legal circles), we can determine that they are relatively similar to the context of how Roman lawyers determined vis maior. However, that does not necessarily mean that the codes must have vis maior expressly prescribed.
E.g. Bürgerliches Gesetzbuch does not have vis maior expressly regulated but prescribes that such events can be subject to statutory provisions on the impossibility of performance (§ 275), and provisions dealing with circumstances where the events in question interfere with the basis of the transaction (§ 313).
Allgemeines Bürgerliches Gesetzbuch has multiple clauses dealing with impossibility of performance which, upon interpretation, represent an inability to perform contractual obligations because of the outer, unexpected and unavoidable situations (e.g. §1104 §1105 §1096 §1168a §1447).
The French Code Civil has an express clause (Art. 1218) dealing with vis maior and it states: “In contractual matters, there is force majeure when an event beyond the control of the debtor, which could not reasonably have been foreseen at the time of the conclusion of the contract and which effects cannot be avoided by appropriate measures, prevents performance of his obligation by the debtor….”
The same goes for the Italian Codice Civile that states in Art. 1256 “The obligation is extinguished when performance becomes impossible for a reason not attributable to the debtor.”
The Romanian Civil Code states in Art. 1351: “Force majeure is an external, unforeseeable, absolutely invincible and unavoidable event… unless the law otherwise provides, or the parties do not otherwise agree, liability is removed when the prejudice is caused by force majeure or a fortuitous event.“
In the Spanish Civil Code, section 1, art. 105 expressly states: „Apart from the circumstances expressly mentioned in the law and in those cases excluded by the relevant obligation, no one shall be liable for those events which could not have been foreseen, or which, if foreseen, were unavoidable.“
Finally, the Croatian Obligations Act (due to not having a civil code) expressly states in Art. 369 (1) „Should, after entering into a contract, extraordinary circumstances appear, which were not possible to foresee at the time of entering into a contract, whereby the circumstances at hand make it excessively onerous for one party to perform its obligations under the contract or the party will suffer an excessive loss due to the subject circumstances, the party may request either change of the contracted terms or termination of the contract.“
However, certain questions impose themselves upon the legal mind – when can someone invoke vis maior? It is completely understandable that floods, earthquakes and global pandemics can cause the inability to perform contractual obligations. But, it is necessary to determine if these circumstances caused a complete inability to perform contractual obligations, or was that just a temporary inability (complete being the total destruction of a factory that produces a product; temporary being shutting the factory for three months). Civil codes and Obligations Acts do tend to make that distinction, allowing the contractual parties to amend their contractual obligations adequately to the matter at hand (keeping the contract active but decreasing the obligation proportional to the events at hand or simply terminating the agreement if partial performance does not satisfy the interests of the parties).
The very usage of vis maior can have a tremendous effect on everyday business and fulfillment of contractual obligations. E.g. if a contractual party calls upon vis maior on paying its debts for a service it receives, the providing party will find itself in a very troubling situation – it conducted all necessary procedures, used the required material, has workers (employees) that it has to pay, taxes and other fiscal obligations it has to fulfill etc. Now, if the other party invokes vis maior the obligation is terminated, and no one is to be held accountable for it because the reason was outside of the scope of possibility of the influence of the contracting parties. That does not, however, make all the monetary obligations for the contracting party that conducted the work disappear. On the contrary, that company does not have the privilege to invoke vis maior to its workers because in the long run, it faces the possibility of bankruptcy or other similar insolvency proceedings on the basis of not being able to pay its workers alone.
It is therefore imperative that, when a contractual party invokes vis maior, it be closely observed as to why it invoked it in the first place and primarily determine if there even is a general inability to conduct its contractual obligations. If, unfortunately that is the case, the second segment one must pay close attention to is the fact if that inability is temporary or permanent. That is important because temporary inability to perform contractual obligations (especially pecuniary in nature) should not be written off immediately. On the contrary, the obligation should be delayed, paid in half or found another way to be postponed or reprogrammed.
Henceforth, it is very important to understand that just calling upon vis maior should not immediately exculpate contractual parties from performing their obligations. It is imperative that a very diligent analysis of the obligations and the situation of the contractual party be performed prior to accepting their objection of vis maior. Given that the COVID-19 situation has been going on for some time now, we are (slowly) reaching a point where it will no longer be determined as an unforeseeable event. We will be obligated to conduct our business with respect to the situation at hand, henceforth, COVID-19 will become a circumstance that will have to be taken into account while conducting business and performing contractual obligations, eliminating its characteristic as a force majeur.
Let’s just hope that we don’t have to deal with another earthquake.
Author: Matej Trkanjec, Legal/Compliance Advisor, B2 Kapital d.o.o.