The COVID-19 pandemic has had a number of consequences not only in terms of human relations. Also, and perhaps above all, in terms of economic relations. Although we are gradually and by small steps already returning to normality, it is worth looking at the legal solutions that have enabled and continue to enable entrepreneurs to limit material losses caused by production stoppages, halted supply chains or the forced closure of workplaces. One such solution is to invoke force majeure. In this article, I will clarify the relationship of the terms force majeure and coronavirus pandemic by answering the questions:
- in which situations we can speak of force majeure,
- what its effects are and
- how we can invoke it to protect our business.
I invite you to read!
The concept of force majeure
In business dealings, force majeure clauses (vis maior, Act of God) are very often included in contracts. These point to specific phenomena which make it impossible for one of the parties to perform its obligations. In many cases, the contracting parties create a catalogue of situations which, in their opinion and interest, fall into the category of phenomena covered by this concept.
Examples include:
- all kinds of dangerous atmospheric phenomena such as floods, earthquakes or hurricanes, or
- riots, a state of war or
- another type of emergency.
In the event of a situation fulfilling the content of the notion of force majeure, the party unable to perform due to this reason will not bear the consequences of non-performance or improper performance of the contract. However, it should be borne in mind that if no event relating to a pandemic, epidemic or emergency caused by a virus or disease is indicated by the parties in the above catalogue, it will not be possible to invoke force majeure on the basis of a contractual provision.
What, on the other hand, if the parties have not included any clause relating to force majeure in the body of the contract?
Does this mean that they will continue to be liable for non-performance of their obligations despite the totality of the adverse circumstances? If the contract does not contain provisions allowing for a reduction of liability by invoking force majeure, recourse to the law remains. Polish law admittedly does not define the concept of force majeure. However, it is assumed to be an event that meets the following criteria:
- is beyond the control of the parties, which is to be understood as meaning that none of the parties contributed to, had or could have influenced the occurrence of the specific phenomenon;
- the event could not have been foreseen at the time the contract was concluded;
- the consequences of which could not have been prevented by taking normal precautions.
Considering the above premises, it must be concluded that the COVID-19 pandemic can be qualified as force majeure. In certain cases, it may exempt from liability for non-performance of the contract. In the face of a nationally declared epidemic or pandemic, a trader may invoke this circumstance to temporarily suspend the fulfilment of his obligation to his counterparty or to waive it entirely, as discussed in more detail below.
Performance of obligations under the Civil Code - Force majeure and the coronavirus pandemic
According to Article 471 of the Civil Code:
"The debtor is obliged to compensate for damage resulting from the non-performance or improper performance of an obligation, unless the non-performance or improper performance is due to circumstances for which the debtor is not responsible."
The content of the above provision implies, in principle, that if the trader, in accordance with the contract, should fulfil an obligation, then if he fails to do so and thereby causes damage to his creditor, he should repair the damage. The creditor, on the other hand, is obliged to prove that the non-performance of the obligation by the debtor caused the damage and to prove the amount of this damage.
The obligation to pay damages does not apply if the debtor exercised due diligence and yet, through no fault of his own, was unable to perform the obligation. However, it should be noted at this point that a higher standard of diligence is expected of entrepreneurs, i.e. professionals. If the creditor seeks damages, then the debtor, in order to avoid liability, must prove that he could not perform through no fault of his own, even though (which he must also prove) he made every effort to perform.
Further legal mechanisms from the Civil Code
Another provision of the Civil Code that may find application in the event of force majeure is Article 495 § 1 according to which:
"If one of the reciprocal performances has become impossible owing to circumstances for which neither party is responsible, the party who should have performed that performance may not claim the reciprocal performance or, if he has already received it, he shall be obliged to repay it in accordance with the provisions on unjust enrichment."
The application of the above regulation is subject to the condition that neither party is responsible for the impossibility of performing the obligation, which corresponds to the assumption of force majeure. It should be noted that if a party invokes Article 495 § 1 of the Civil Code in connection with a force majeure event, the other party to the contract may demand the return of the performance it has already rendered or, if it is not possible to return it, demand an equivalent payment for it.
Our consideration would not be complete if we omitted the clause rebus sic stantibus, i.e. an extraordinary change of circumstances expressed in the wording of Article 357(1) of the Civil Code according to which:
"If, due to an extraordinary change of relations, the fulfilment of the benefit would be connected with excessive difficulties or would threaten one of the parties with a gross loss, which the parties did not foresee when concluding the contract, the court may, after considering the interests of the parties, in accordance with the principles of social co-existence, determine the manner of fulfilment of the obligation, the amount of the benefit or even rule on the termination of the contract. In terminating the contract, the court may, if necessary, rule on the parties' settlements, following the principles set out in the preceding sentence."
As can be seen from the above regulation, even termination of the contract is possible if the content of the indicated provision is invoked. However, only the court has this competence. Therefore, if you wish to exercise this option, you must take legal action.
Force majeure and the coronavirus pandemic - an example of invoking force majeure in economic relations
Transferring the above theoretical considerations to a more practical setting, I would like to focus primarily on Problems of office leases in the face of the COVID-19 pandemic. At the same time, I would like to point out here that the guidance I have provided is still only of a general nature. This is because each case requires an in-depth analysis based on a specific factual situation.
Many leases between professional parties contain separate provisions on force majeure, or an extraordinary change in relations. In such cases, the parties may limit force majeure to specific events. They may also grant the parties related rights. For example, the parties may indicate that there will be a freeze on the contract for the duration of the force majeure event. They may also decide that the rent will be reduced for the duration of the force majeure. In the first instance, therefore, the content of the contract should be carefully read to find the relevant provisions. As I indicated earlier, if the events listed by the parties to the contract do not include a pandemic caused by a virus, the parties will not be able to rely on this contractual provision to exclude their liability. However, it will remain to invoke the Civil Code solutions described above. In particular, on Article 495 § 1 treating the impossibility of performance.
What consequences can the application of force majeure have on the relationship between landlord and tenant?
Here, too, the specific situation must be addressed first and foremost. However, in cases where there is a high risk of a large group of people being infected by a dangerous virus, the landlord will have the right not to allow the tenant and its employees into the office premises. Similarly, the tenant can invoke force majeure in cases of a real threat of a pandemic. He or she can then refuse to pay the rent as a result. The threat should be objective and real. The damage suffered by the other party in such a situation must result directly from the risk of COVID-19 contagion.
Force majeure and the coronavirus pandemic - executive summary
Arguably, during the COVID-19 pandemic, many entrepreneurs took the opportunity to invoke force majeure. Economic ties resulted in an interconnected effect. The suspension of the performance of a contract between two business partners entailed a corresponding suspension of other contracts. However, it is likely that not all entrepreneurs have invoked force majeure in an effective and legally compliant manner.
Whether attempts to exclude liability for damages due to force majeure in the form of the COVID-19 pandemic were successful will soon become clear.
In all probability, it can be said that some conflicts against this background will be taken to court. It is therefore advisable to try to resolve possible conflicts amicably beforehand, as well as to consult the situation in detail with a lawyer.
