Consequences of Covid-19 for contractual arrangements

Much has been said and written about act or god / force majeure. Covid-19 turned into a pandemic, however a pandemic was covered by some contracts, except insurance contracts. There it was ruled out.

There was a lot of (legal) uncertainty, but it was agreed: we must solve this together. After all, everyone suffers from it.

In the meantime, lawsuits have started and judgments have been made by courts in which corona played the leading role. For example, the Amsterdam District Court recently decided not to declare bankruptcy of a company, but instead requested the parties to enter into negotiations about a settlement. Here, Covid-19 was apparently the cause of the default.

Another striking judgment is that of the Amsterdam District Court on a cleaning contract. A hotel in Amsterdam had outsourced cleaning services to a third party. The parties had concluded an agreement for this in 2016. After the corona outbreak and due to the intelligent lockdown, the hotel temporarily closed its doors in March 2020. The hotel informed the third party that their services were no longer needed. Although the parties entered into consultations, they did not agree. In summary proceedings, the cleaning company – very briefly stated – claimed, among other things, that the hotel must consult with them, but if that was not done, then the contract should be fulfilled and therefore paid. Although a contract is usually a contract and the parties are obliged to comply with it, in this case, the court ordered the hotel to enter into consultation with the cleaning company about an adjustment of the rates in the event of reduced demand due to Covid-19.

In September this year, the Rotterdam District Court applied reasonableness and fairness in deciding whether a contract must be fulfilled and the compensation by dissolution thereof paid in full. Here the court stated that the plaintiff “held a knife to the defendant’s throat” just after the lockdown. The lockdown and related measures hit the defendant harshly, while the consequences for the plaintiff were manageable. The requirements of reasonableness and fairness mean that the parties must take each other into account. If unforeseen circumstances arise – such as Covid-19 and the measures that have been taken – this may mean that the parties have an obligation to each other to renegotiate the agreement between them.

Here too the hard rule “contract is contract” was abandoned by the court and a solution was sought. A judge is authorised to do so. Pursuant to Article 6: 258 of the Dutch Civil Code, the court has the authority to amend an agreement or to dissolve it, in whole or in part, based on unforeseen circumstances. The circumstances must be of such a nature that the other party, according to standards of reasonableness and fairness, cannot expect unaltered maintenance of the agreement. It seems that the courts are using this power – which must be applied with caution – to guide the parties through the pandemic.

If you have any questions about your contract and how this can or should be adjusted, please contact us.