Can the Coronavirus be Considered as a Force Majeure?
The coronavirus that has been lately spreading worldwide presents a number of challenges for business. To reduce the spread of the virus, Chinese and Italian companies have temporary suspended their operations. This resulted in the termination of a large part of contracts. These countries are very important business partners of Lithuania. Therefore, a question that many entrepreneurs are asking is: “Does the coronavirus can be considered as a force majeure?”
“The Civil Code of the Republic of Lithuania describes force majeure as a circumstance that was beyond the control of and that could not be foreseen by the party at the time of the conclusion of the contract. “Enterprise Lithuania”, as an organization promoting entrepreneurship, is asked everyday by business clients if this force majeure circumstance can be applied due to adverse business effects of coronavirus and due to emergency situation declared in Lithuania”, Daina Kleponė, the Managing Director “Enterprise Lithuania”, identifies a question that is frequently asked by the business entities of our country.
According to lawyers, the mutual agreement is the best way to determine when events can be considered a force majeure event: if one party claims being unable to fulfill the agreement by virtue of force majeure circumstance, and another party agrees with that, the event will be considered as force majeure. But what if the parties fail to reach an agreement?
“The courts have established that force majeure are unexpected events that neither party could have foreseen and has assumed no liability for them in the contract (for example, the increased price of meeting the obligation will not be considered as a force majeure event). The party wishing to take advantage of the fact of force majeure must also prove that there is no other way to fulfill its obligations and that it has taken all necessary measures in order to fulfill its contractual obligations. In each case, the fact of force majeure must be assessed individually”, explains Vytautas Kalmatavičius, the Partner of the law firm “Triniti Lithuania”.
Kalmatavičius adds that in assessing whether the coronavirus outbreak and the state restrictions associated with it can be considered as a force majeure event, attention must be paid to how force majeure event had an impact over a failure to fulfill the contract and how force majeure circumstances are described in the contract. It is also necessary to assess whether the party has taken all necessary measures to fulfill its contractual obligations.
“Viral epidemics are usually not considered as a force majeure event. The Government of China has announced that, because of the restrictions imposed by it, the Government will issue the companies concerned with force majeure certificates that would help Chinese businesses in disputes with foreign entities. It is likely that, due to assessment of events by the Government of China and assistance to companies, Chinese companies will try achieving that failure to fulfill their contracts would be considered as a force majeure event”, comments V. Kalmatavičius.
It is important to draw attention to the fact that it is laid down by Lithuanian laws that cases where the goods needed to fulfill the obligation are not available on the market, the party to the contract does not have the necessary financial resources or the debtor’s counterparties are in breach of their obligations are not considered as a force majeure event. It means that Lithuanian companies, whose product or service suppliers are companies based in China, usually will not be able to resort to force majeure as a reason for non-performance of the contract. In this case, the company must look for suppliers from other countries. Also, if in the future other countries, including Italy, will take security measures that are similar to those taken in China, they, probably, will not be considered as force majeure because, knowing the Chinese example, it is possible to predict in advance what measures governments can take to stop the spread of the virus and it is possible to prepare for that ahead of time.
In Lithuania, legal entities are issued with certificates attesting to force majeure circumstances by the Chambers of Commerce, Industry and Crafts of Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys.
According to Jūratė Radzevičienė, the lawyer of Vilnius Chamber of Commerce, Industry and Crafts, force majeure certificates are issued after individually examining the resulting situation and if those circumstances occurred and existed in the territory of the Republic of Lithuania.
“For example, if force majeure circumstance occurred in China, we have no reason to issue the organization with this certificate. However, if, due to coronavirus, prohibitions or restrictions imposed by the Government of the Republic of Lithuania, that affect the business, cause business losses or other negative consequences, will be formulated, then organizations having experienced difficulties will be able to apply for a force majeure certificate”, explains J. Radzevičienė.
Specialists note that, in concluding contracts, it is necessary, as a general rule, not only specify a force majeure circumstance that would be applicable under the law of a particular country, but it is also very important to additionally discuss what actions and specific commitments will be taken in the event of force majeure. Prompt notice given to the other party on force majeure event is another important aspect. In the event of delay and after having missed the deadline specified in the contract, it is deemed that the terms of the contract were not implemented, and then liability and loss must be borne by the party has experienced a force majeure circumstance.
More information for business in terms of COVID-19 you will find here.