Many companies are suffering from the outbreak of the coronavirus through the disruption of their normal business activities. This disruption is often caused by either a company’s inability to perform its contractual obligations or by the inability of its contract partners to perform.
From a legal perspective, the question arises: who can be held liable for the non-performance or – in other words – who bears the losses of an event that prevents parties from performing their contracts?
As a general rule, the contract party that is held to perform, but does not perform, is liable for breach of contract. That party may, however, argue that its non-performance is due to an event outside its control, called force majeure. If force majeure can be established, the parties to a contract are no longer held responsible for performing their obligations or paying compensation for breach of contract.
Under articles 1147-1148 of the Belgian Civil Code, the debtor of a contractual obligation will be liable to pay compensation if he is in breach, unless he can show that his breach is due to an external cause (“le fait du Prince”) or to force majeure. (Both concepts are hereafter referred to as force majeure).
An external cause is, for instance, a decision by the public authorities that prevents the performance of the contract. A transportation company that cannot deliver goods in a certain area cannot be held liable for damage caused by the lack of delivery in that area.
Force majeure usually refers to events that occur independently from human interaction, such as an earthquake or an epidemic. A manufacturer that must stop the production because his employees or workers are not available due to the spread of a virus will also not be liable.
According to the Belgian Supreme Court, to avoid liability, the debtor must show that it is absolutely impossible (or at least reasonably impossible) to perform his obligations. If any other person placed in the same circumstances is unable to perform his obligations, we can claim force majeure. If, however, you cancel the contract to rent a conference hall because you expect fewer visitors due to the coronavirus, you may be held liable for breach of contract because it is not impossible to organise the conference; it may just be less profitable.
The second requirement for force majeure is that the event that prevents the debtor from performing his contractual obligations may not be due to his action or inaction. The event must be unforeseeable at the time the agreement is concluded. For all agreements concluded at the time the media began reporting on the spread of the coronavirus, it will be difficult to use the force majeure defence in case of breach. The parties must assess whether or not to conclude a contract, knowing that the performance of their future obligations may be affected by the coronavirus.
The first step in case a force majeure issue arises is to check what is written in the contract. If the parties' contract states that the spread of a virus can be regarded as force majeure, the courts will respect this agreement and exempt the debtor from liability. If the contract does not refer to a virus as force majeure or if there is no force majeure clause (or if there is no written contract at all), the general rules of the Civil Code as set out above will apply.
The second step is to assess whether the contractual obligations can be completed at a later stage. If late performance is possible, there will be no force majeure event. Hopefully, the current spread of the coronavirus will soon end and parties can resume the performance of their agreements.