The UNIDROIT Force Majeure in the world of COVID
Given the Coronavirus outbreak, it is more that possible that international courts will face the following dilemma: could the outbreak of SARS-COVID be considered a force majeure event and be used to render a defense against a breach of a contract?
The UNIDROIT Principles of International Commercial Contracts („Principles”) is a universal instrument that come up with a set of general rules designed for the international commercial contracts. Pursuant to the preamble of the Principles, private businesses from different countries have the liberty to either choose them expressly as the rules governing their agreements, or to agree that their contract be governed by general principles of law. Moreover, the Principles could be applied if the parties have not chosen the law applicable to their agreement or they might be used to supplement international laws.
Along with these provisions the Principles recognizes the freedom of the parties to choose an autonomous, tailor-made solution, by including in their agreement force majeure provisions.
According to art. 7.1.7 of the Principles, „non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.”
In more general terms, one of the parties cannot perform its contractual obligations due to unforeseeable events that are beyond its control and were not reasonably considered to be taken into account.
There are many situations that are classed as force majeure examples: earthquakes, hurricanes, avalanches, any other events that are happening independent of human activity – known in English law as „act of God”. Likewise, the term includes events such as unexpected legislation or lockouts.
To be successfully invoked by the defendant, the following conditions must be fulfilled:
- Irresistible, meaning that the event that prohibits a party from fulfilling its commitment is impossible to be resisted.
- Uncontrollable, in other words, the impediment is beyond the party’s control and is generated outside its will.
- Unforeseeable signifies that the party could not have reasonably be expected to take the impediment into account at the time of the conclusion of the agreement.
- Unavoidable, means that the party could not have reasonably avoid or overcome the event itself or its consequences.
In general, the parties are under the obligation to counteract the disturbance. Prior to invoking the provision, the party affected by the impediment is under the obligation to take all necessary measures against impediments that are looming. Furthermore, the party must counteract the consequences if the event took place and, in all cases, the party should notice the event to the other party.
The main consequence of invoking the force majeure is termination of the contract and the party affected by the event is relieved by its contractual obligations and any damages arising from it. However, this is not mandatory and parties can resort to other remedies: suspension, allowances or renegotiate.
The question that arises is the following: could the notoriety of SARS-COV 2 pandemic be reason enough to trigger a force majeure provision?
It is difficult to provide a general answer. To begin with, mere notoriety of the happening is not reason enough and the defendant is under the obligation to endorse the casual link between the event and its impossibility to perform. Moreover, considering that courts do not judge unanimously, a possible starting point in finding an equitable solution would be the contractual provisions.
Besides, foreseeability plays a pivotal role in the present matter. For instance, a tribunal established under the China International Economic and Trade Arbitration Commission rules ruled against force majeure defense in the context of the 2002 – 2003 SARS epidemic, arguing that the impediment leading to the failure to deliver the contracted goods was foreseeable, given that the outbreak took place two months before the contract.
In conclusion, commercial contracts have a complex structure, their scope is to exist over a significant period and are not immune to the social changes. The force majeure issue is a difficult one, constitutes an exception from the principle pacta sunt servanda and, given the present outbreak, it raises thought-provoking questions. Although parties can invoke it to terminate the contract, they should consider other remedies.
Author: Calin Balescu-Arion