Published March 4, 2020
Force Majeure 1 – Does the coronavirus infect contracts?
Amidst the general turmoil caused by the unforeseen spread of the coronavirus across Europe, many companies and individuals find themselves in the uncomfortable position of not being able to perform contracts already closed, because certain goods cannot be delivered or certain places cannot be accessed.
Consequences on business operations
Letting aside those extreme cases getting most media coverage, such as impossibility to deliver disinfectants, mouth masks or even to operate commercial flights, there are many cases in which the coronavirus is having indirect albeit widespread effects.
Take for instance contracts about the organisation of events, such as trade fairs, summits, fashion shows, conferences. Many of such events are being postponed or even cancelled completely over the risk of contagion, leaving organisers with the problem of how to deal with all contracts and agreements closed in light of the event as originally planned: what to do about the catering, the security personell hired ad-hoc, the supply of diverse goods and services (e.g. rented furniture, shuttle services etc.)?
Force majeure will save your… or maybe not?
At first sight, these situations remind of schoolbook examples of the so-called principle of “force majeure”.
Roughly speaking, due to diverse reasons it may be or become impossible for one of the parties to a contract to perform it: this scenario is addressed – to name examples – by art. 1256 of the Italian Civil Code (“impossibilità sopravvenuta”) or § 275 of the German Civil Code (“Ausschluss der Leistungspflicht”). However, this does not automatically mean that the party whose performance has become impossible is released from any obligation: typically, the nonperforming (or malperforming) party must compensate the other party’s damage.
And this is where the force majeure principle comes into action: if the obliged party can prove that the impossibility to perform depends on an unforeseen and unforeseeable factor lying completely beyond its control, then no damages are due to the other party. This principle is by the way recognised also at an international level by art. 79 of the United Nations Convention on Contracts for the International Sale of Goods.
What is unforeseeable, unforeseen and beyond control?
Typical examples of force majeure cases are natural phenomena, such as earthquakes, floods or – yes – epidemies. These events are certainly beyond control – but are they also unforeseeable? The typical lawyer answer is: it depends. If you build a house next to a volcano the fact that it might erupt and destroy it would certainly be beyond control, but not unforeseeable.
Similarly, the coronavirus spreading to Europe is substantially beyond control, but was it really unforeseeable, in particular since the epidemy started in China months ago? As ever so often, there is no general answer to this question, because the devil is always in the detail.
My best guess would be that one would have to distinguish: the spread of the coronavirus in Europe per se is certainly not an unforeseeable event: we knew it would come on any of the many direct flights from China. We knew that it would start to spread organically across Europe starting in those places that have most frequent links to China. However, I don’t think anyone could have predicted a specifically extreme situation as notably that of (Northern) Italy, which for reasons yet to be fully understood has experienced a contagion rate almost higher of that of the whole rest of Europe. Entire towns have been isolated, flights cancelled, schools and universities closed down for weeks, important trade events – such as Milan’s design fair Salone del Mobile – have been cancelled or postponed. If a contract is affected by these particular circumstances, there would probably be a good chance to “get out” over force majeure and avoid having to pay damages.