Legal consequences of the coronavirus on contracts

What are the legal consequences of the coronavirus on contracts? My colleague, Jasper Hagers, earlier wrote a blog about the coronavirus and the termination of Dutch agreements.

The coronavirus (COVID-19) and the measures taken by the Dutch government have an enormous impact on the society. The first bankruptcies are a fact. The performance of contracts is under pressure. All kind of industries, such a retail, manufacturing, the travel Industry, hospitality and leisure are affected by the coronavirus. The coronavirus threatens the stability and continuity of supply chains and the ability to continue the trade worldwide.

Non-performance of contractual obligations due to corona

A lot of companies face the non-performance of contractual obligations due to corona.
Examples of non-performance of contractual obligations:

Companies cannot supply because the factories in China are closed.
Products cannot be timely shipped because the harbour has ceased to function properly.
Who is then liable for those damages?

Coronavirus and force majeure

Under Dutch contract law, parties to a contract can generally claim specific performance. However, the coronavirus and the measures taken by the Dutch government may constitute force majeure (in Dutch: overmacht). Force majeure means that specific performance of a contract can no longer necessarily be expected. Whether this applies depends highly on the interpretation of the contract and all circumstances of the case.

Often parties deviate from the statutory force majeure provision and define in the contract what qualifies as a situation where performance is impossible because of a force majeure situation. Normally the contractual provision prevails over the law.

In principle, force majeure situations relieve parties to comply with the contractual obligations and to pay damages.
Force majeure however does not prevent the other party from suspending its performance or to annul (in Dutch: ontbinden) the contract.

The question is if the coronavirus is to be qualified as a force majeure event?
To my view, the coronavirus and the measures taken by the Dutch government could fall under a force majeure situation, unless certain circumstances allocate the risk in another way.

A Dutch court has ruled in the past that because of the unforeseeable legislative measures as a result of the epidemic of the bird flu led to a situation where damages as a consequence of non-performance of the contract were not attributable.

Contract can be amended and terminated as a result of the coronavirus

Most commercial contracts contain clauses that determine how parties can amend or terminate the contract. Where there is no written contract with certain stipulations, the applicable law determines how a contract can be amended or terminated.

The Dutch Civil Code stipulates that any failure of a party in the performance of one of its obligations under the contract automatically grants to the other party the power to terminate the contract.

Also in a force majeure event, the contract can be amended and terminated as a result of the coronavirus.

Amend a contract as a result of the coronacrisis: unforeseen circumstances

Under Dutch law, a party may request a Dutch civil court to amend a contract as a result of the coronacrisis. That party may request the court to amend the contract or its adverse consequences on the basis of unforeseen circumstances. Unforeseen circumstances are circumstances which parties have not incorporated in the contract. Case law provides precise facts and circumstances that normally do and do not qualify as unforeseen circumstances.

In 2008 (during the economic crisis), Dutch courts were quite reluctant to apply the remedy of unforeseen circumstances. However, an pandemic is something else than financial risks. So courts may decide that the extreme effects of the coronavirus and the measures taken by the government are not only financial risks and could be qualified as unforeseen circumstances. When the corovirus is to be qualified as an unforeseen circumstance, this could have the consequence of suspension a contractual obligation, amendment of the contract or termination of the contract.

Lawyer in Amsterdam for coronavirus

If you need legal assistance with the legal consequences of the coronavirus on contracts, please contact lawyer in Amsterdam for coronavirus, Lisa Jie Sam Foek ( consequences coronavirus