The World Health Organisation (WHO) declared the novel coronavirus disease (COVID-19) a public health emergency of international concern on 30 January 2020. In addition to the very real and tragic human impact, the consequences of the outbreak of the coronavirus disease are being felt by companies across many industries and in territories across the world.

In the light of this, businesses are increasingly looking to understand their options in the face of delays and/or contractual non-performance. With the prevalence of force majeure clauses in commercial agreements in particular, a key question for many businesses is whether the global outbreak would constitute a force majeure event entitling a party to invoke the rights - or avail itself of the remedies - afforded to it under a force majeure clause.

In a global commercial environment, businesses need to take a holistic approach to their commercial contracts. This tool offers a multi-jurisdictional overview of the circumstances in which a party may be able to rely on a force majeure clause, as well as some of the other remedies – contractual or otherwise – on which a party may seek to rely if exposed to delays and/or non-performance as a result of the outbreak of the coronavirus disease.

United Kingdom

Does the outbreak of the coronavirus disease amount to force majeure?

In the UK, force majeure is a contractual remedy so whether or not the coronavirus disease will amount to a force majeure event will depend on the terms of the force majeure provision in question. A party seeking to rely on a force majeure provision should consider:

What gives rise to relief: The clause itself will specify what a force majeure event is. In some contracts, this is an exhaustive list and in others a force majeure event is expressed as an event which is outside of a party's control, with an illustrative list provided. Whether or not the outbreak of the coronavirus disease is a force majeure event will therefore depend on the construction of the relevant provision. If the outbreak of coronavirus disease could constitute a force majeure event, the party seeking to rely on the provision will additionally need to consider when they will be entitled to relief. Often, force majeure clauses include a requirement that a party is "prevented, hindered or delayed" from performing its obligations, but again this will depend on the drafting of the specific provision. Mitigation: Even if a party can prove that: (i) a force majeure event has occurred; and (ii) that force majeure event has prevented, hindered or delayed it from performing its contractual obligations, the affected party must also show that there were no reasonable steps that it could have taken to avoid or mitigate the force majeure event or its consequences. Notification: Parties seeking to rely on force majeure provisions should check whether there are any requirements to notify the other party in the event of force majeure. If there are, those provisions must be carefully followed. What remedies the provision offers: Not all force majeure provisions give rise to a right to terminate the contract. In some circumstances, the provision merely suspends performance or provides the affected party an excuse for delay or non-performance, preventing that party from being in breach of the contract. Even if there is a right to terminate, this will often only apply if the force majeure event prevents, hinders or delays a party from performance for a material period of time.

Are there any other remedies a party can rely on?

Contractual

For a party considering its options in relation to delays and/or non-performance, the contract itself is a good place to start. Aside from the force majeure clause, there might be other clauses that a party could seek to rely on, for example:

Termination/suspension/step-in rights: a party may be entitled to terminate the contract for convenience on the giving of notice to the other party, to suspend the contract or to appoint an alternative supplier to temporarily step-in and perform services in order to mitigate its losses. Break clauses: some contracts contain provisions which entitle either or both parties to terminate the contract early, either on the occurrence of specific milestones or at set intervals. Non-exclusive arrangements: the customer or service recipient may have the right to source alternative suppliers more generally or on the occurrence of specific events, such as failure to meet predetermined delivery targets. Compliance with law: many contracts contain provisions which oblige the parties to comply with certain laws.  It may be that supply chain disturbances would cause a party to be in breach of a provision of this type - for example due to a failure to comply with health and safety laws - such that the other party is entitled to terminate the contract.

Non-contractual

The common law doctrine of frustration may aid a party which finds itself affected as a result of the coronavirus disease outbreak.  It applies after the formation of a contract, where an event which is unexpected and beyond the control of either party occurs.  Such an event would need to transform the contractual obligation to perform into something radically different from what it was when the contract was entered into, or render the contract physically or commercially impossible to fulfil.

In practice, this doctrine has been very narrowly applied by the courts.  Further, there is case law to suggest that, if a party is seeking to rely on the doctrine of frustration and could have relied on a force majeure clause but failed to invoke the contractual remedy correctly, its right to rely on the doctrine of frustration would be lost. 

Spain

Does the outbreak of the coronavirus disease amount to force majeure?

In Spain, the coronavirus pandemic and the declaration of the State of Alarm through Royal Decree 463/2020 may make it impossible to fulfil certain obligations. This said, a party seeking to rely on a force majeure provision should consider:

  • Contractual or sectoral provisions. In those cases in which there is a specific provision, either contractual or by sectoral regulations (insurance, labour, environment, agriculture, administrative, tax, procedural, etc.) on the consequences of force majeure, it must be carefully followed (e.g. notification provisions). Whether or not the outbreak of the coronavirus disease is a force majeure event will therefore depend on the interpretation of the relevant provision.
  • Compliance with the requirements established by the Supreme Court case law. In the absence of specific provision, article 1105 of the Spanish Civil Code considers force majeure as a circumstance that liberates a party from its obligation to comply without incurring liability for damages. The requirements that may lead to contractual irresponsibility due to force majeure, unless the contract or the law establish otherwise, are the following:

a) Lack of culpability of the debtor.

b) Impossibility of fulfilment.

c) Unpredictability/ inevitability.

d) Causal relationship: The fortuitous or unavoidable event must be cause and have as consequence the breach of the obligation.

  • Burden of proof. The party that alleges force majeure has the burden of proving that the breach was due to an unforeseeable or inevitable event, that is, outside its scope of control.
  • What remedies the provision offers. The legal consequence of the concurrence of these requirements is not the total exemption of a party from the fulfilment of its obligation, but an exclusion of any compensation for damages. In this regard, the impossibility of fulfilling the obligation due to force majeure may be:

a) Total and definitive, giving rise to a right to terminate the contract. This consequence will not be applicable when the obligation consists of a monetary debt (Supreme Court Rule of May 19, 2015 and July 13, 2017) or when the obligation is generic and not specific.

b) Partial. A party is released only in the part that is impossible to fulfil, but still bound by the part that can be carried out.

c) Temporary. The force majeure event delays a party from performance for a material period of time.

Are there any other remedies a party can rely on?

Contractual

For a party considering its options in relation to delays and/or non-performance, the contract itself is a good place to start. Aside from the force majeure clause, there might be other clauses that a party could seek to rely on, for example:

  • Termination/suspension/step-in rights: a party may be entitled to terminate the contract for convenience on the giving of notice to the other party, to suspend the contract or to appoint an alternative supplier to temporarily step-in and perform services in order to mitigate its losses.
  • Break clauses: some contracts contain provisions which entitle either or both parties to terminate the contract early, either on the occurrence of specific milestones or at set intervals.
  • Non-exclusive arrangements: the customer or service recipient may have the right to source alternative suppliers more generally or on the occurrence of specific events, such as failure to meet predetermined delivery targets.
  • Compliance with law: many contracts contain provisions which oblige the parties to comply with certain laws.  It may be that supply chain disturbances would cause a party to be in breach of a provision of this type - for example due to a failure to comply with health and safety laws - such that the other party is entitled to terminate the contract.

Non-contractual

  • Rebus sic stantibus: Sometimes, a health crisis situation such as this, does not make it impossible to fulfil an obligation, but it does produce an alteration in the contractual balance. The rebus sic stantibus doctrine has been established by Spanish case law and allows the modification of a contract due to the unexpected alteration of the circumstances, provided that: a) these new circumstances are unpredictable at the time of the formalisation of the contract and, b) such circumstances lead to an imbalance between the contracting parties e.g. to a repeated loss result (economic impossibility) or to the complete disappearance of any profit margin (lack of the remuneration nature of the benefit). Traditionally, the temporary modification of the contract has been the remedy provided, but sometimes Courts have accepted the termination if it is absolutely impossible to restore the balance of the benefits of the contract.
  • Supervening impossibility: Finally, if a party obligation has become materially or legally impossible, a party would be entitled to terminate the contract. For example, if a personal exceptional (intuitu personae) obligation cannot be carried out due to the death or illness of one of the parties, parties could still rely on this remedy whenever the impossibility is supervened; not attributable to the party that cannot comply; and objective. However, the interpretation of the Supreme Court has been restrictive and casuistic, and it introduces numerous criteria to estimate its application.

Italy

Does the outbreak of the coronavirus disease amount to force majeure?

Italy does not have any general statutory provisions relating to force majeure which would allow parties to a commercial contract to avoid the performance of their contractual obligations in case of a supervening event, even if force majeure is a legal concept well known inside the Italian law framework. Consequently, it is necessary to understand on a case-by-case basis whether a contract can be terminated, or its performance can be lawfully suspended due to the current coronavirus emergency situation prevents a contractual party (or both) to perform some or all of their obligations under an agreement. Obviously, each agreement has its own content and legal design; however we can underline the following:

  1. In general, the contractual clauses specify the risks arising from Force Majeure and performance of the contract, in order to allocate them between the parties. Similar provisions help to define the concept of Force Majeure adopted by the parties in the individual contract;  
  2. There may be contracts that exclude the relevance of Force Majeure, but explicit exclusions are relatively rare, it is necessary to make clear the intention of the parties to endow the contractual relationship with the character of randomness.  
  3. The contractual clauses may take into consideration, for the purposes of exemption from liability, eventualities that do not fall within the notion of Force Majeure, since they designate difficulties in fulfilling and not already objective circumstances hindering fulfilment. Conversely, the contractual clauses may raise the degree of diligence that is imposed on the party liable for a given performance in order to overcome the consequences of Force Majeure events.

Finally, in the face of the COVID-19 emergency, the hypothesis of exemption from liability on force majeure is potentially conceivable, but the resolution of any conflicts remains largely left to the content and tenor of the individual agreements and their interpretation.

The Italian Government is constantly monitoring the situation and issuing new legislation to try to protect citizens, companies and institutions as much as possible, introducing new exemptions or legal solutions to limit the damages deriving from the current pandemic crisis (you can see a first example in the right column with the recent Law Decree No. 9/2020). It is possible therefore that new legislation will come into effect in the near future that might change this opinion.

Are there any other remedies a party can rely on?

The fundamental rule of Italian contract law is article 1218 of the Italian Civil Code which provides that the debtor who does not exactly fulfil his obligation must compensate the other party for the damage, unless he is able to prove that the failure or delay in performance is not attributable to the debtor himself.

Also, Article 1256 and Article 1463 of the Italian Civil Code have to be taking in consideration, concerning the (definite or temporary) supervening impossibility to perform a contract.

Indeed, according to Article 1256, the obligation of a party ceases if its performance becomes definitively impossible for a reason not attributable to the debtor. If the impossibility is temporary, the obligor is not liable under the contract for the time and for the whole duration of the impossibility, but the obligation ceases when - according to the nature of the contract - the impossibility persists, so that the obligor is no longer bound to perform its obligation, or the other party has lost its interest in such performance. In bilateral contracts, the party who has been released from his obligations because of the impossibility has not the right to demand performance of the counter obligation and must return any performance already received (Art. 1463).

In this context it is useful to remember also art. 1467 of the Italian Civil Code. (excessive onerousness arising) according to which, in continuation contracts, the party whose obligation has become excessively onerous due to an extraordinary and unforeseeable event (for example, a situation similar to that of COVID-19) has the right to request termination of the contract.

In addition, specific cases have been already taken into account by the new legislative provisions and in particular the recent Law Decree No. 9/2020 has introduced, among others, the following provisions:

  • reimbursement, of tickets for travel (e.g via air, seat or rail) and tourist packages in all cases listed under section 28 of Law Decree No. 9/2020;  
  • suspension of terms of payment of duties and/or penalties due to the chambers of commerce in the municipalities included in the Red Zone;  
  • suspension of payments of insurance premiums;  
  • suspension and rescheduling of payment plans for utilities (energy, environment, etc.); and  
  • ordered the suspension of the terms to fulfil contractual obligations for persons residing or based in the Red Zone from 22 February 2020 to 31 March 2020, with these terms starting back up again at the end of the suspension period.

France

Does the outbreak of the coronavirus disease amount to force majeure?

French law defines force majeure in contractual matters as “an event beyond the control of the debtor, which could not have been reasonably foreseen when the contract was conclude and which effects cannot be avoided by appropriate measures, (and which) prevents the performance of its obligation by the debtor” (article 1218 of the French Civil Code - CC).

Parties to a contract are free to adjust the definition of force majeure, specifying what would expressly be considered or not as a case of force majeure. Where no force majeure clause in inserted in the contract, the legal definition of the French Civil Code will apply.

In the past, French courts have ruled out the qualification of force majeure in situations of epidemic: where no causal link was characterised between the Ebola virus and the company’s fail to meet with its payment obligations (Paris Court of Appeal, March, 17th 2016, n°15/04263), where the Ebola virus did not make the performance of the contract impossible (Paris Court of Appeal, March, 29th 2016), where the H1N1 virus had been widely announced and planned (Besancon Court of Appeal, January, 8th 2014), for travelling, when SARS did not present a major health risk in the destination country (Paris civil lower court, May 4th 2004, n°11-03-000869), where the Chikungunya symptoms were not of a serious nature (which is not the case of COVID-19) (Basse-Terre civil lower court, December 17th n°17/00739).

Therefore, the mere existence of an epidemic is not sufficient to constitute force majeure. The contractor must prove (1) the causal link between the Covid-19 and the impossibility to perform its obligation, (2) the impossibility to implement appropriate measures and (3) that the following conditions of the force majeure are met :  

  • Unpredictable: this element is assessed at the time of the conclusion of the agreement.

    Concerning Covid-19, it will be necessary to question when the epidemic could have been anticipated (from the moment when the epidemic began in China? when it arrived in Europe? in France? when the WHO declared it to be a pandemic?). An objective reference date would be the 30th of January 2020, when the WHO declared the coronavirus outbreak to be a public health emergency of international concern. It will certainly be difficult to invoke force majeure for contracts signed after the 30th of January as it will be hard to characterise the unpredictability of the event. However, it cannot be automatically and definitively ruled out due to the evolving nature of the epidemic. Caution must be taken for recent and future contracts.

  • Irresistible: this element should be assessed on a case-by-case basis considering the purpose of the contract and its link with a territory affected by the epidemic.

It can be assumed that, as soon as the debtor is personally affected, force majeure will be applicable since the latter is no longer in a position to meet his contractual obligations. However, this cannot be invoked as a mere excuse to release oneself from the obligations provided for.

There are exceptions to the application of force majeure: for example, payment obligations cannot be exempted by force majeure.

Also, only the contractual obligations which performance is affected by force majeure will be exempted. In response to the force majeure event, the contract can be either suspended (temporary impossibility) or terminated (permanent impossibility).

On February 29th 2020, French Minister of Economy has announced that the notion of force majeure could be raised by suppliers in the context of public procurement contracts.  This provides an indication as to how the epidemic may be assessed from a legal standpoint by administrative Courts. However, the Minister has no authority to assert rulings or give instructions to Courts on this topic. 

As a  conclusion, while the very existence of Covid-19 may not automatically qualify as an event of force majeure, governmental measures and orders aiming at addressing the health crisis (mandatory administrative decision to restrict gatherings, to suspend transport activities, to order the shut down of restaurants and shops, etc) may qualify as such. A detailed analysis of the contractual relationship and of the specific decision impairing or preventing the performance of the applicable obligations will be necessary to assess whether force majeure can be upheld.

Indeed, State law prevails over party law so that contractual stipulations may only be valid if they comply with law. Containment measures prevent de facto some activities from being carried out. Therefore, qualification as force majeure will depend on line of business concerned and, more precisely, on whether or not the operators are allowed to continue their business in the light of the measures taken by the State. Similarly, even though a line of business may not be impacted by these restrictions (e.g.  factory...), they could nevertheless be subject to requisition for the production of sanitary equipment, so that they will be unable to carry out the performance of their contracts. 

Are there any other remedies a party can rely on?

Parties can renegotiate the contract under the theory of unpredictable circumstances stated by article 1195 of the Civil Code, which sets out that: “if a change in circumstances unpredictable at the time of the conclusion of the contract makes performance excessively onerous for a party who had not agreed to assume the risk, that party may request the other party to renegotiate the contract. It shall continue to perform its obligations during the renegotiation.”

This article further provides that in the event of refusal or failure to renegotiate, (1) the parties can agree to terminate the contract, (2) request by mutual agreement a court to adapt it or, (3) if no agreement is reached, either  party can file a request for a Court to revise or order the termination of the contract on the date and on the conditions that it determines.

Please note that such statutory mechanism is not deemed to be a public policy rule and can therefore be ruled out or altered by contract. As an exception, the theory of unpredictable circumstances is always valid and cannot be set aside under public procurement contracts (Canal de Craponne, Conseil d’Etat, 1876).

Hong Kong

Does the outbreak of the coronavirus disease amount to force majeure?

Similar to English law, force majeure in Hong Kong is a contractual mechanism that needs to be expressly incorporated into the contract and will not be readily implied. The content of a typical force majeure clause is similar to the ones that can be found in other common law jurisdictions, including:

1. A statement of the triggering events: Often this will be in the form of a list of specific examples, followed by a catch-all provision for the force majeure mechanism to kick in. In some contracts, parties may also set out the events which are excluded.

a. The exact events that are included or excluded from the application of a force majeure clause vary from contract to contract. Examples of force majeure events commonly found in commercial contracts include Acts of God, war, terrorist attack, and natural disasters.

b. The catch-all provision will generally require that the force majeure must not be foreseeable, avoidable, or within the control of the party wishing to invoke the clause; also, the force majeure must be of such magnitude that would impede or prevent the performance of the contract.

2. Obligations of the party wishing to invoke the force majeure clause: Almost certainly a force majeure clause will provide for the time frame within which and the method by which a party must notify its intention to invoke the force majeure clause. Such party is also usually under a contractual obligation to take reasonable steps to mitigate the impacts of the force majeure.

3. What happens to the parties' contractual obligations: Parties enjoy a degree of flexibility in tailoring the remedies available when a force majeure event happens. Parties may either be released from the contract, or be entitled to suspend the performance of their obligations.

The uncertainties surrounding a force majeure clause are illustrated by the challenges faced by the retail industry. The Hong Kong Government's requirement that civil servants work from home does not have mandatory force on the private sector. However, many employers have followed suit with a view to discharge their duties to ensure workplace health and safety. Consequently, small and medium enterprises (SMEs) are facing difficulties as the virus outbreak has discouraged private consumption. Naturally, with business premises being shutdown, they would want to know if they can be either permanently or temporarily relieved from obligations such as supplying or taking delivery of goods. Whether the outbreak of COVID-19 falls within the ambit of the force majeure clause is a matter of construction of contract. A party facing difficulties under the outbreak would need to review their contracts to see if the clause covers the spread of epidemics. Companies should also assess the width and gravity of the impact of the outbreak. A force majeure clause is generally narrowly construed and therefore mere commercial hardship may not qualify to release a party from their obligations.

Are there any other remedies a party can rely on?

Contractual

Where the contract does not contain a force majeure clause, parties may wish to explore other remedies provided in other provisions to make the maximum use of the contract (see examples of these remedies in the discussion for the United Kingdom above).

Non-contractual

Alternatively, a party may also wish to invoke the doctrine of frustration. As in other common law jurisdictions, frustration is a narrowly applied doctrine in Hong Kong. A contract is frustrated only where its performance is rendered impossible, illegal, or radically different from what was envisaged in the contract by a supervening event. The supervening event must not be foreseen, foreseeable, or within the control of either of the parties. A contract is also not frustrated where it has merely become a bad bargain.

In Hong Kong, the combined impact of the US-China trade war, political unrest, and the virus outbreak, has added uncertainties to the already volatile property market. However, at least some guidance can be taken from the outbreak of Severe Acute Respiratory Syndrome (SARS).

In Li Ching Wing v Xuan Yi Xiong [2004] 1 HKLRD 754, a tenant of domestic premises for a two-year tenancy sought to terminate the tenancy agreement on the ground that the tenancy agreement was frustrated by the outbreak of SARS. In particular, the tenant relied on the facts that many residents in the tenant's block of flats had contracted the disease and that the Department of Health later issued a ten-day isolation order for the residents living in the block of flats.

Despite finding the outbreak of SARS an unforeseeable event, the court rejected the tenant's argument because "the supervening event did not … significantly change the nature of the outstanding contractual rights or obligations from what the parties could reasonably have contemplated …" (at [11]).

The above case illustrates the Hong Kong court's cautious approach to the doctrine of frustration. Currently, the Hong Kong Government has imposed a 14-day compulsory quarantine on visitors from certain countries. Although the mandatory quarantine may affect the operation of commercial contracts, whether it amounts to a frustrating event would hinge on the exact nature of the parties' obligations.

Practical advice

Termination of contracts on the grounds of force majeure or frustration are often more fraught and uncertain than it seems. When considering terminating the contract, parties are also advised to explore the possibility of working out a solution in a more collaborative fashion, such as by conducting "without prejudice" negotiations to adapt to the change of circumstances.

Singapore

Does the outbreak of the coronavirus disease amount to force majeure?

In Singapore, whether the coronavirus outbreak and/or the resulting government restrictions are covered by a force majeure clause will depend on the wording and scope of the clause, the steps taken by the party seeking to invoke the clause, and whether the outbreak constitutes a foreseeable contingency. The courts are typically guided by the contracting parties' intentions as embodied in the contract. (RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd; Holcim (Singapore) Pte Ltd v Precise Development Pte Ltd) A party seeking to rely on a force majeure provision should consider:

Interpreting the clause: The courts will apply the presumption that force majeure events are restricted to supervening events which arise through no fault of either party and which neither has undertaken responsibility for. (RDC Concrete) Mitigation: The party seeking to invoke the force majeure clause must show that there are no alternative means for performing its obligations, or that it has taken all reasonable steps to avoid the operation of the clause. Increased costs or hindrances alone will not be sufficient to prevail on a claim of force majeure. However, this is not an absolute duty and the party seeking the benefit of this clause need only take such steps as to account for foreseeable contingencies. (The Neptune Agate) Notice Requirements: Typically, the affected party's right to relief under a force majeure clause will be conditional upon the issuance of a notice by it to the other party, together with required evidence. The contract may also require the notice to state the anticipated consequences and the duration of the force majeure event. Some contracts may also require notice to be provided within a specified period of time from when the affected party first became aware of the force majeure event, failure of which will result in a loss of entitlement to the remedies provided.

What remedies the provision offers: The remedies available to each party depend on the wording of the force majeure clause. A force majeure clause can provide for different consequences upon a stipulated event apart from discharge of the contract, such as extension of time for performance, or variation to the contract. (RDC Concrete)  

Are there any other remedies a party can rely on?

Contractual

For a party considering its options in relation to delays and/or non-performance, the contract itself is a good place to start. Aside from the force majeure clause, there might be other clauses that a party could seek to rely on, for example:

Termination/suspension/step-in rights: a party may be entitled to terminate the contract for convenience on the giving of notice to the other party, to suspend the contract or to appoint an alternative supplier to temporarily step-in and perform services in order to mitigate its losses. Break clauses: some contracts contain provisions which entitle either or both parties to terminate the contract early, either on the occurrence of specific milestones or at set intervals. Non-exclusive arrangements: the customer or service recipient may have the right to source alternative suppliers more generally or on the occurrence of specific events, such as failure to meet predetermined delivery targets. Compliance with law: many contracts contain provisions which oblige the parties to comply with certain laws.  It may be that supply chain disturbances would cause a party to be in breach of a provision of this type - for example due to a failure to comply with health and safety laws - such that the other party is entitled to terminate the contract.

Non-contractual: Doctrine of Frustration

Even if the terms of the agreement do not specify the outbreak as a triggering event allowing parties to terminate the contract, parties may still discharge themselves from contractual obligations if the contract has been "frustrated". A contract is frustrated when something renders it physically or commercially impossible to be fulfilled or transforms the obligation to perform into a radically different obligation. (Adani Wilmar v Rabobank Nederland; Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd) The result of proving that an agreement is frustrated is the discharge of the contract in its entirety.

There is legislation setting out the extent to which advance payments made before the frustrating event intervened may be refunded and work done in preparation of the performance of the contract may be reimbursed. (s 2(2) and s 2(4) of the Frustrated Contracts Act (Cap 115, 1985 Rev Ed))

Practically speaking, the legal threshold to invoke the doctrine of frustration is generally higher than that for force majeure. The Singapore Courts have been careful to apply the doctrine strictly and not to allow a party to invoke the doctrine of frustration merely to escape a bad bargain. (Holcim (Singapore) Pte Ltd v Precise Development Pte Ltd).

Sweden

Does the outbreak of the coronavirus disease amount to force majeure?

Swedish contract law is founded on the principle of freedom of contract. Contracts are thus enforced in accordance with their terms and they may only be modified or invalidated by a court in exceptional situations (in practice it is very uncommon in B2B contracts). Swedish contract law is often consequently a good and predictable alternative.

Hence, whether the outbreak of the coronavirus (and the effects thereof) will qualify as a force majeure event or not will depend on the interpretation of the contract of which the wording of contract (including the force majeure clause in question) is one very important part. 

A force majeure clause under Swedish law normally begins with an (non-exhaustive) list of different force majeure events. Often force majeure clauses in contracts under Swedish substantive law do not usually explicitly mention pandemics or government imposed measures as a force majeure event, but refers instead to an event beyond the reasonable control of a party and that is not attributable to such party’s fault or negligence. Often there is a provision that regulates how a party must inform the other party if a force majeure event has occurred. Both parties also have a respective obligation to mitigate the consequences of the force majeure event. Finally, there is normally a provision on the effects of the force majeure event, for example discharge from the fulfillment of a certain provision of the agreement.

Considering the current situation, our view is that the outbreak of the coronavirus most likely will be considered to be outside the reasonable control of a party and could therefore constitute a force majeure event. However, force majeure only relieves a party from performance of its obligations under the contract and of liability for breach of contract to the extent that the force majeure event actually prevents said party from fulfilling a specific contractual obligation. The fact that it becomes more difficult or more expensive to fulfil the contractual obligations does not always entail a right to invoke force majeure itself.

Since force majeure is contractually regulated, it is difficult to provide general advice on what the affected party should do when it finds itself in a force majeure situation. However, the affected party is usually deemed to (i) promptly inform the other party of the force majeure event and, within a certain timeframe, (ii) provide evidence of the force majeure event, and (iii) both parties shall seek to find an equitable solution and use all reasonable efforts to minimize the consequences of the force majeure event.

However, caveat must be taken before invoking a force majeure provision. One reason for that is that the party invoking the force majeure clause must bear in mind that a long lasting force majeure event may entail a termination right for the other party. Another reason is that if a party does not fulfil its obligations under the contract does not follow the stipulated scheme of the force majeure clause, or if the event does not constitute a force majeure event at all, the party is in a breach of contract. That could mean that the other party may demand the correct performance of the contract, terminate the contract and/or claim damages. 

Are there any other remedies a party can rely on?

Non-contractual

There are no general statutory provisions relating to force majeure. In cases when there is no force majeure clause in the contract it can be argued that a party does not have to fulfil its obligations with reference to the provisions in the Swedish Sales of Goods Act or the Swedish Contracts Act.

Another non-contractual remedy that a party may rely upon is the principle that a party may be excused for its non-performance under the contract if unforeseeable events outside the party’s control are at hand and that the knowledge of such conditions/events had changed how the party had acted when entering into the contract. Whether this principle should be regarded as generally applicable is however yet to be determined, and depends on the circumstances in each case.

Contractual

Where the contract does not contain a force majeure clause, a party may wish to explore other remedies provided in other provisions to make the maximum use of the contract (see examples of these remedies in the discussion for the United Kingdom above).

A practical solution 

Even if the outbreak of the coronavirus amount to force majeure event, there is another contractual or non-contractual ground for delay/non-performance or not, an affected party may always seek a "goodwill oriented solution". Basically everyone is aware of the crisis that coronavirus has caused and, under the prevailing situation, it is often possible to find a one-off solution that will ensure that suppliers, customers and partners mutually have as good conditions as possible to get through the crisis and continue to do business after the corona-crisis settles.

Netherlands

Does the outbreak of the coronavirus disease amount to force majeure?

In the Netherlands, force majeure is both a contractual and statutory remedy.

Contractual

In the Netherlands, freedom of contract is an important principle, especially in business-to-business relations. Parties are free to draft almost any variety on a force majeure clause. Whether force majeure can be contractually invoked will depend on the terms of the force majeure provision in question.  A party seeking to rely on a force majeure provision should consider:

  • What gives rise to relief: The clause itself will specify what a force majeure event is. In some contracts, this is an exhaustive list and in others a force majeure event is expressed as an event which is outside of a party's control, with an illustrative list provided. Whether or not the outbreak of the coronavirus disease is a force majeure event will therefore depend on the construction of the relevant provision. If the outbreak of coronavirus disease could constitute a force majeure event, the party seeking to rely on the provision will additionally need to consider when they will be entitled to relief. Often, force majeure clauses include a requirement that a party is "prevented, hindered or delayed" from performing its obligations, but again this will depend on the drafting of the specific provision.
  • Mitigation: Even if a party can prove that: (i) a force majeure event has occurred; and (ii) that force majeure event has prevented, hindered or delayed it from performing its contractual obligations, there may be a requirement on the party to mitigate the impact of the force majeure event, for example by taking all reasonable steps to continue performing its obligations under the contract.
  • Notification: Parties seeking to rely on force majeure provisions should check whether there are any requirements to notify the other party in the event of force majeure.If there are, those provisions must be carefully followed.
  • What remedies the provision offers: Not all force majeure provisions give rise to a right to terminate the contract.In some circumstances, the provision merely suspends performance or provides the affected party an excuse for delay or non-performance, preventing that party from being in breach of the contract.Even if there is a right to terminate, this will often only apply if the force majeure event prevents, hinders or delays a party from performance for a material period of time.

Parties should keep in mind, however, that invocation of a force majeure clause is always subject to a reasonableness and fairness test in the Netherlands. However, in business-to-business relations, judges will usually not interfere with such invocation.

Statutory

If nothing is contractually agreed, the statutory regime applies. In such cases, a party which can invoke force majeure will not be liable. However, what constitutes force majeure is not defined in the law and is therefore dependent on judicial interpretation. There is currently no case law on whether force majeure can be invoked in relation to COVID-19.

In general, however, the following, rather strict, criteria apply:

  • Performance (of the obligation in question) is impossible (either temporarily or permanently);
  • The impossibility of performance is outside of the scope of influence of the party invoking force majeure (i.e that party has not caused it in any way and is unable to take measures to enable performance);
  • The impossibility of performance could not have reasonably been prevented; and
  • The impossibility of performance was not foreseeable at the moment of concluding the contract.

In light of these criteria, invocation of statutory force majeure is likely to only be successful if performance is forbidden by measures imposed by the government in the fight against COVID-19.

Are there any other remedies a party can rely on?

Contractual

In the Netherlands, freedom of contract is an important principle, especially in business-to-business relations. Parties are free to draft almost any arrangement regarding delays and/or non-performance. Examples of such clauses:

  • Termination/suspension/step-in rights: a party may be entitled to terminate the contract for convenience on the giving of notice to the other party, to suspend the contract or to appoint an alternative supplier to temporarily step-in and perform services in order to mitigate its losses.
  • Break clauses: some contracts contain provisions which entitle either or both parties to terminate the contract early, either on the occurrence of specific milestones or at set intervals.
  • Non-exclusive arrangements: the customer or service recipient may have the right to source alternative suppliers more generally or on the occurrence of specific events, such as failure to meet predetermined delivery targets.
  • Compliance with law: many contracts contain provisions which oblige the parties to comply with certain laws.  It may be that supply chain disturbances would cause a party to be in breach of a provision of this type - for example due to a failure to comply with health and safety laws - such that the other party is entitled to terminate the contract.

Parties should keep in mind, however, that invocation of any such clause is always subject to a reasonableness and fairness test in the Netherlands. However, in business-to-business relations, courts will usually not be inclined to interfere with such invocation.

Non-contractual

In the Netherlands, parties may rely on the statutory doctrine of unforeseen circumstances.

If a party wishes to rely on this doctrine, that party would have to request a court to modify/terminate the applicable agreement. The legislative history of the Dutch Civil Code instructs judges to practice reluctance in applying this doctrine. Judges should only modify/terminate an agreement based unforeseen circumstances if the counterparty may not reasonably expect unchanged continuance of the agreement in light of the principles of reasonableness and fairness. Most unfavourable unforeseen circumstances are often viewed as falling within the margins of normal entrepreneurial risk. For example, a changing state of the economy or a party’s financial situation will generally not meet the threshold. Generally speaking, courts will only grant a request to modify/terminate an agreement on the basis of unforeseen circumstances if:

  1. The underlying purpose of the agreement has been rendered obsolete or has been rendered unachievable by the changed circumstances;  
  2. A serious disruption of the value-ratio of the contract has occurred, meaning that the balance of obligations under the contract of one party vs. those of the other party is greatly disturbed; or  
  3. Performance of the contract has become extremely onerous.

There is currently no case law on whether a crisis such as the COVID-19 crisis falls within one of these categories. Depending on the circumstances, this could be the case. For example, the legislative history states that natural disasters could be cause of successful invocation of unforeseen circumstances and the current crisis (in particular circumstances) be viewed as similar by courts.

In the Netherlands, legal relations between parties are always subject to the principles of reasonableness and fairness. In light of this, some commentators have argued that in case of invocation of unforeseen circumstances in light of COVID-19, judges should divide the risk equally between the parties, meaning that any loss should be divided 50/50, unless an applicable contract provides for a different distribution of risk. 

Australia

Does the outbreak of the coronavirus disease amount to force majeure?

In Australia, relief against force majeure events are not implied into contracts, but rather must be expressly incorporated into the relevant agreement between the parties. In other words, the relief will only operate if, and to the extent that, the contract specifically provides for it. As such, parties will first need to review their particular agreement and identify that a force majeure clause indeed exists. If the contract contains force majeure provisions, then there are a number of considerations: There are a number of considerations a party seeking to rely on a force majeure provision should consider:

  • Occurrence of the event within the clause: If a force majeure provision does exist in the contract, the clause will typically define or list the types of occurrences or events that would give rise to a relief. It is important to note, that the courts will construe force majeure clauses strictly and the onus will be on the party seeking to rely on the relief to prove that the event in question (i.e. COVID-19) fits within the defined 'force majeure' events in that particular contract.  
  • Obligations on the party seeking relief: In addition, force majeure clauses will commonly require the parties seeking to rely on the clause to have performed certain tasks. Common requirements include taking reasonable steps to prevent the occurrence of the event or to mitigate its results. In addition, the clause may impose performance obligations, such as requiring the relying party to have given timely notice and to produce evidence of the impact of the event on their business.  
  • Remedies: the remedies available to a party will depend on the terms of the particular force majeure clause.

Are there any other remedies a party can rely on?

Contractual Aside from the force majeure provisions, the contract may also include other clauses which parties may be able to rely on in relation to delays and non-performance, for example:

  • Termination/suspension/step in rights: a party may be entitled to terminate the contract for convenience on the giving of notice to the other party, to suspend the contract or to assign the agreement to an alternative supplier – in which case the alternative supplier agrees to take over the parties' obligations (step into the shoes of the party) and to perform the services under the contract.  
  • Break clauses: some contracts contain provisions which entitle either or both parties to terminate the contract early, either on the occurrence of specific milestones or at set intervals.  
  • Compliance with law: many contracts contain provisions which oblige the parties to comply with certain laws. It may be that supply chain disturbances would cause a party to be in breach of a provision of this type - for example due to a failure to comply with health and safety laws - such that the other party is entitled to terminate the contract.

Non-contractual

Unlike force majeure clauses which will only apply if the contract provides for it, the doctrine of frustration is readily implied into every agreement. In short, a contract may be frustrated by an event which, without the fault of either party, causes performance of the contract to be impossible or makes performance radically different to what was contemplated at the beginning of the contract. In practice, the question is whether the COVID-19 pandemic makes performance of the contract impossible (not merely more difficult). For instance, if the COVID-19 pandemic merely makes performance of contractual obligations more costly or causes significant delays, then it is unlikely to be sufficient to frustrate the contract. On the other hand, if government bans or restrictions certain activities make it impossible for parties in contracts connected to those activities to honour their obligations, then it is more likely those contracts are frustrated. For instance, a government ban on all shopping centres would likely mean it is impossible for landlords of shopping centres to perform their obligation to remain open to the public potentially frustrating the retail agreements with their tenants.