12 March 2020
It is a fact that the novel coronavirus is now affecting business.
When Dutch law applies to your contracts, how should you handle this?
Note: The guidance in this article applies only to business contracts governed by the law of the Netherlands. For advice on business contracts governed by another country’s law, please seek legal advice.
It may be claimed that a force majeure situation has arisen because of the measures taken to contain the coronavirus (Covid-19). As soon as there is force majeure, the debtor is not liable for damages for non-compliance with his contractual obligations. One party may therefore be happy to appeal to this, while it can actually be very disadvantageous for the other party.
Force majeure is defined as follows in Article 6:75 of the Dutch Civil Code:
“A shortcoming cannot be imputed to the debtor if it is not due to his fault, nor is it due to the law, legal act or generally accepted views.”
The success of an appeal to force majeure requires that the shortcoming is not due to the debtor’s fault, nor should it remain at his risk. The law does not stipulate that compliance must be prevented, but (subject to a few exceptions) that non-compliance without prevention will always lead to fault.
Fault is also present if the debtor should have avoided the shortcoming. If one road is closed but other roads are still open, then the debtor is indeed to blame for non-compliance; he should have walked the other roads.
If the force majeure requirements are met (due to temporary or permanent impossibility), then the claim for compliance will be rejected. In this event, there is no attributable shortcoming and the creditor is not entitled to compensation. Dissolution is still possible.
The fact that the coronavirus makes compliance more difficult or more expensive does not justify invoking force majeure.
Contractual agreements often contain a force majeure clause. If that is the case, you must first assess the force majeure situation based on the included clause. This clause is usually formulated as follows:
“Neither of the parties is liable for the failure to fulfil any obligation of this Agreement (with the exception of payment obligations) that is the result of a strike, shortages, riots, riots, fire, flood, storm, explosions, natural disasters, war, government intervention, working conditions, earthquakes, lack of materials or any other circumstance which the defaulting party could not reasonably influence. ”
If there is an event beyond the control of the parties because of which the contract cannot be performed, this can lead to a force majeure situation.
Whether an epidemic such as the Covid-19 virus is deemed force majeure remains to be seen and will depend on the circumstances of the case. It is not currently included in the list of disasters that cause force majeure. However, if the government decides to cordon off specific areas or zones, this may well fall under the clause. It may also be that the government has already labelled the coronavirus as a force majeure situation.
Of course, there will also be parties who try to get out of a contract by stating that there is force majeure due to the coronavirus. If this is the case, it is good to know what the requirements are and to act in good time.
It remains important to respond adequately to the measures taken by the government. If possible, you should relocate production to another location or order products or parts from another supplier. It is important that you stay in close contact with your suppliers and customers and inform them immediately about a possible force majeure situation, so that your customer can also anticipate this. This is very important in a chain of contracts.
As indicated, mutual contact is very important. Stay together and try to find a solution together. Postpone an event or move it, so that the damage for all parties remains as limited as possible. Finding a solution is always preferable to a lengthy procedure.
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