SPBILF 9 1⁄2: Rule of Corona. Is it the Epidemic Itself or its Outcomes that Make a Force Majeure?

On April 11, 2020, within the framework of St. Petersburg International Legal Forum 9 ½: Rule of Corona, the International and Comparative Law Research Center held the discussion session on the topic “Is it the Epidemic itself or its Outcomes that Make a Force Majeure?”.

A discussion of legal issues emanating from this topic, with foreign experts' involvement and overview of other countries' practices, has been designed to contribute to the development of Russia's approach to the acute legal problem of how COVID-19 and states’ measures affect private-law transactions. The outcome of this discussion may contribute to the shaping of general systemic principles clear to business people around the globe, including those involved in international trade.

The legal issues related to the qualification of the COVID-19 outbreaks and adopted restrictions as force majeure in different legal systems have been discussed by Enrico del Prato (Professor of Civil Law, The Sapienza University of Rome), Ian Lewis (Managing Partner of the Beijing office, Mayer Brown) and Florian Heindler (Assistant Professor in Law, Sigmund Freud University Vienna). The discussion was moderated by Anton Ivanov (Academic Supervisor, Faculty of Law, School Head, School of Private Law, National Research University Higher School of Economics).

In her welcome speech, Victoria Manko, General Director of the Center, noted that by now, more than 80 countries had taken unprecedented restrictive measures. The COVID-19 outbreaks today affect the substantial part of the world, and their consequences are of cross-border character. “The introduction of the measures preventing the virus from spreading objectively has a bearing on the contractual performance. This begs a question about the recognition of the pandemic or its outcomes as force majeure along with that about the responsibility of contractors not fulfilling their obligations in these new circumstances,” Victoria Manko explained. For this reason, it is vital to examine the peculiarities of how different countries determine a force majeure event, she concluded.

The moderator of the discussion Anton Ivanov told about the concept of force majeure in Russia. He stressed the necessity of insurmountable circumstances to exist for a party to a contract to be able to rely on force majeure. The existence of such circumstances is always to be appraised only by the court and strictly on a case-by-case basis. In the meantime, executive and legislative bodies’ acts recognizing the existence of force majeure do not have predetermined power for the court’s evaluation. Acts of these bodies as enforcement measures possibly inflicting harm and entailing compensatory damages are not to be confused with force majeure. Anton Ivanov added that there had been so far no court decision concerning coronavirus as a possible ground for the applicability of force majeure.

The focal points of Enrico del Prato’s presentation were on the issues common to contractual law of many countries. The different legal frameworks normally proceed from an assumption that contracts may contain a clause regulating the matters of delays in performance. The existent approaches are codified in, for instance, the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law. In the extraordinary circumstances, however, contractual law allows to terminate or cure a contract via the so-called “escape clauses”. In the absence of such clauses, the appraisal of whether a contractor’s actions are consistent with the contract and the determination of its future validity are to be conducted in good faith and with due regard paid to the particular circumstances. He then also mentioned that, as for now, the COVID-19 outbreaks might be grounds for the modification of contracts since they constitute a factor bearing on the re-allocation of risks normally pertained to contracts.

Ian Lewis picked up on the previously raised point that a case-by-case approach must be applied in the determination that a force majeure event exists. Such an approach is critical in the case of China where the situation had developed at a different pace in various regions, and this diversity had brought about the distinction in the content of the restrictions and the time when they were adopted. He further stressed how important it is to determine to what extent the business activity was actually prevented from being operative. The factors complicating the analysis include many measures being rather “suggestions made”, and that their impact was different depending on the nature of the affected business. Meanwhile, businesses in China were advised to mitigate damages by taking actions, such as sending notices to contractors about their hardship and preventing adverse effects from happening, because otherwise the businesses would not be entitled to rely on force majeure clauses. Ian Lewis concluded by stating that very few claims that are made and will be made are clear-cut in terms of their prospects of success, taking into account the complexity of the legal issues.

Florian Heindler articulated how Austria had been coping with the COVID-19 outbreaks and how these measures present the opportunities for many to claim force majeure. The legality of the measures taken by Austria derives from the old legislation that was applied before. Therefore, it is unlikely that a party to a contract willing to invoke force majeure requiring the existence of unforeseeable events can successfully refer to such restrictions as unpredictable. Unlike these measures, a pandemic itself is difficult to foresee. He explained how under Austrian law lease and service agreements are legally affected in situations when the reasons for a contract to exist cease to be in place (“Wegfall der Geschaftsgrunde”). Besides, the approach, according to which restaurants with no customers do not pay rent now in Austria, can be traced back to Roman law under which settlers were excused from paying rent when they fled in fear of diseases. Austria also implements a number of measures postponing the time when the performance of certain contracts is due (rents, consumer credits, credits to small enterprises and contractual penalties) and supports its banks.

The participants decided to publish the materials of the discussion .