There is no avoiding the Corona-virus anymore. In view of the measures announced by the Belgian government, the consequences for businesses are bound to be tangible. We have therefore listed below some tips on how to manage the execution of ongoing contracts in this new and exceptional situation for everyone.
First of all, we recommend that you draw up a summary of all ongoing contracts, applicable general terms and conditions and orders within your company. This will enable your company to react quickly and appropriately when the execution of certain contracts cannot be respected by your company or your contractual partner due to the Corona crisis. These measures may consist in the postponement of the execution of certain obligations, the renegotiation of contracts in their entirety or even the termination of the contract. The reasons founding such measures can also be very diverse: production capacity is compromised by the lack of raw materials due to quarantine measures, lack of personnel due to employees under quarantine, import or export problems with customs, etc.
Does this concern Force Majeure (external cause)?
A very important question to be answered is whether the current “Corona crisis” constitutes a situation of temporary or definitive situation of force majeure. It is equally important to check whether the current contracts contain a clause of force majeure and, if so, how these are defined.
In the absence of a specific definition in the contract, force majeure – as defined under Belgian law - requires (i) the occurrence of an unpredictable and unavoidable event, beyond the debtor's control or will, and (ii) that constitutes an insurmountable obstacle to the performance of the obligation incumbent upon him.
The "general threat" of the coronavirus is in itself insufficient to invoke force majeure. However, if the government imposes certain measures that apply to your company, and as result of which your company can impossibly perform its obligations, then this constitutes, in our view, an external cause or “fait du prince”, for which the applicable conditions are identical to force majeure.
What are the consequences for current contracts?
If one of the parties to the contract cannot fulfil its obligation due to force majeure, it is released, either temporarily or definitively, from the relevant obligation. In case the insurmountable obstacle to perform the obligation is temporary, then said obligation is suspended. As from the moment that such obstacle disappears, performance of the obligation needs to be done again, unless this would not be deemed useful anymore. In case the insurmountable obstacle is definitive then the contracting party who was ought to perform the obligation is liberated from doing so.
In case of reciprocal contracts the other contracting party is however also not obliged to perform his obligations anymore. It would even be possible that the entire contract would become void in case the obligation subject to force majeure is the main obligation of the contract and is inseparably connected with the other obligations of the contract.
What do your contracts say?
However, your contract may provide for a more or less broad definition of "force majeure", and that certain steps must be followed by the party invoking force majeure. Very often, the latter must inform the other contracting party thereof. Even in the absence of a contractual requirement for such notice, it is strongly recommended to do so.
What do I need to do in order to invoke force majeure (external cause)?
If your company wishes to invoke force majeure based on the Corona virus, it is also important that it properly documents the actual existence of the force majeure, as well as how it influences the execution of the contract. It is highly likely that some companies will try to take advantage of the Corona-crisis to elude the execution of an obligation, which would not have been fulfilled or would have been fulfilled late, even without the Corona-crisis.
Businesses should also be aware that failure to comply with - or late fulfilment of certain obligations subsequently has repercussions on the performance of the contracts between their contracting parties and third parties, and so on. Each company must execute its contracts in good faith and must therefore ensure that the other contracting party suffers as little damage as possible, even if force majeure can be invoked. Therefore, inform your contracting party in due delay if your company is unable to fulfil its obligations or to execute the contract in good time.
Do you have any further questions about the impact of the Corona-virus on your company?
Please contact us using the contact details below.