Corona – Effects on an agreement
You can’t continue with your agreement because of the coronavirus?
Is the coronavirus grounds for invoking force majeure?
Can you terminate an agreement because of the coronavirus outbreak? Is there a case of force majeure?
Force majeure is a legal concept that means that an unforeseeable event occurs, beyond the debtor’s control, which makes it temporarily or permanently impossible to fulfil an obligation. In order to qualify as force majeure, three conditions must be met:
- It must be an unforeseeable event,
- beyond the debtor’s control,
- which makes it temporarily or permanently impossible to fulfil an obligation.
With all of the above, you should take into account that agreements and/or general terms and conditions often contain agreements to the contrary.
For example, certain events may have been excluded as grounds for force majeure (e.g. this could be the case for an epidemic), it may have been agreed that if the force majeure continues for a certain period of time, the agreement may in any case be terminated, it may have been agreed which party must bear any additional costs, …
So when you are confronted with a possible force majeure situation, you should always carefully check the agreements you have made with your counterparty.
If you enter into a contracting agreement in the near future, be sure to include a force majeure clause referring to the corona crisis.
What effect can the coronavirus have on an agreement?
As a result of the coronavirus measures, many companies are faced with cancellations of orders and terminations of agreements. It goes without saying that this has a lot of negative consequences for both parties. But who should swallow the bitter (financial) pill?
In order to answer this question, we have to go back to the provisions that were provided for in the agreement between the parties and/or the general terms and conditions. In those documents you can often read how a cancellation and/or termination will take place (Within what period of time should this take place? What amounts must be refunded? What amounts may be retained as compensation?).
However, even if the agreement between the parties is continued, certain changes may occur as a result of the aforementioned measures. For example, there may be clauses allowing price adjustments in certain exceptional circumstances.
More and more, especially in international trade agreements, we also see the application of so-called ‘hardship clauses’. Where force majeure concerns the impossibility of fulfilling an obligation, hardship clauses are provided for cases in which it becomes more difficult to fulfil an obligation. Usually, price adjustments can also be made on the basis of such clauses, which can of course have far-reaching consequences.
Therefore it is important to examine all the provisions of the applicable commercial law documents carefully or to send them to us for an review.