By now, the coronavirus affects almost everyone. Schools, eating and drinking establishments and gyms are closed, many people work from home, and everyone is asked to keep their distance. All in the context of flatten the curve. The economic consequences are enormous, especially in the hospitality-industry.
From a legal perspective, it is an important question what the consequences of the coronavirus are for ongoing contracts. What are the consequences if you are unable to meet your contractual obligations now? Will you get your money back if your other party does not comply? Is it possible to terminate a contract? In this blog you can read more.
Fortunately, crisis situations are the exception, not the rule. Only rarely in history has the government imposed measures that go beyond the current ones. Fortunately, the law does contain a regulation to deal with the consequences: force majeure.
First the main rule: you have to fulfil your obligations. If you fail to do so, the other party may dissolve the agreement. In that case there must be default, or compliance must be “permanently or temporarily impossible”. In addition, you must compensate the damage that another person suffers as a result of this, if this shortcoming can be attributed to the person who does not comply.
Damage and force majeure
We’ll start by the question of damage claims. The law stipulates in Section 6:75 of the Dutch Civil Code:
“A failure cannot be imputed to the debtor if it is not due to his fault, nor is it for his account by virtue of law, legal act or generally accepted practice”.
This regulation is the statutory force majeure regulation: you do not have to compensate any damage if a failure is due to force majeure. If something is not your fault, nor is it due to the law, a contract or social views at your expense, it will qualify as force majeure. Whether this is the case must be assessed on a case-by-case basis. To give an example: for a school the coronavirus is clearly a case of force majeure. The forced temporary closure is not the fault of the school, but of the coronavirus. Also, the closure is not at the expense of the school according to the law or social views. Nor is there a contractual basis on the basis of which the school is responsible for the closure. Any damage caused by parents cannot therefore be recovered from that school.
There is an important exception to the aforementioned principle. In the case of a contractual guarantee, an appeal to force majeure does not apply. This is the true nature of a guarantee: no matter what happens, I will ensure that I fulfill my obligation.
Dissolution and force majeure
However, the force majeure clause does not apply to the dissolution of agreements. The law states in article 2:265 BW paragraph 1:
“Any failure of a party in the fulfilment of one of its obligations shall entitle the other party to dissolve the agreement in whole or in part, unless the failure does not justify such dissolution with its consequences in view of its special nature or minor importance”.
In jurisprudence it is emphasized time and again that each shortcoming gives the other party the authority to dissolve the contract. Therefore there does not have to be a culpable shortcoming, so force majeure does not play a role. However, dissolution may not be appropriate because of the special nature or minor importance of the shortcoming.
Whether a shortcoming as a result of the corona virus qualifies as a shortcoming with a special nature, I cannot tell you in advance with certainty. However, I believe that in many cases there will be a good argument for this. After all, this remains an exceptional situation. A judge will also look at it that way, and will be guided primarily by reasonableness and fairness. In that context, there is another legal measure that is more obvious in some cases.
If your other party fails to fulfill its obligations, you may suspend the fulfillment of your obligations in return. If it concerns a partial failure, this is only possible to the extent that the failure justifies it. In many cases, suspension will lead to a much more reasonable outcome. The contractual relationship will be maintained, where possible the supplier will fulfill his obligations, and he will be paid for what he still does.
What has been described above are the general rules on damages, dissolution and suspension. These rules apply as long as the parties have not made any deviating or additional arrangements in their agreement. However, a good contract contains specific provisions on all these points. In addition, certain contracts are subject to other, legally binding regulations. On the basis of the contract, it must be determined in that specific case who has to bear the consequences of the coronavirus.
If you have any questions about the impact of the coronavirus on a contract, please do not hesitate to contact Thomas van Essen.