Force majeure and COVID-19. Typical or atypical. Practical solutions and proposals
Force majeure and COVID-19. Typical or atypical. Practical solutions and proposals
Force majeure and COVID-19. Typical or atypical. Practical solutions and proposals
The coronavirus epidemic, known as COVID-19, is spreading throughout Europe, with the virus inevitably occurring in Romania as well. This epidemiological situation is regarded worldwide as a public health emergency of international interest, according to the World Health Organization, especially with regard to the extreme contagion of this virus. In view of this situation and in view of the unforeseen future developments, WHO declared coronavirus to be a pandemic.
In this context, companies need to analyze the impact of this epidemic both on the level of human resources and on the level of commercial relations with the contractual partners located in the affected areas.
Many states and corporations have taken drastic measures to stop the spread of the virus, significantly affecting global economic operators, such as quarantine and/or strict measures to restrict the movement of people.
As for Romania, the activity of the companies is expected to be significantly affected, given the bilateral relations with Italy, one of the main importers of Romania, which is at the moment the epicenter of the epidemic in Europe, but also taking into account the measures recently adopted by the competent authorities, among them being measures to restrict the movement of persons, cancellation of events, suspension of teaching activities, suspension of the activity of the courts.
It is unanimously recognized that the success of a commercial activity depends on the proper performance of its contractual obligations. However, there are cases of non-performance or improper execution of the obligations assumed. Depending on the causes that led to such non-execution, various consequences also occur.
In many cases, the parties will have difficulties in the execution of the ongoing contracts, especially in the distribution ones.
The natural question in such a situation is whether this pandemic and the measures implemented by the Romanian Government and other competent authorities, as well as those to be taken, constitute a “valid excuse” for non-execution, in the context of the intervention of the force majeure, as a liability exonerating cause.
The contracting parties involved in economic activities that may be impacted by the occurrence of coronavirus should evaluate in concreto whether or not the contracts concerning them provide the epidemiological situation to be covered by force majeure, insofar as they have inserted such a clause.
Otherwise, it must be examined whether the pandemic generated by the occurrence of COVID-19 is subsumed to the general notion of “force majeure”, as defined by the legal provisions.
In relation to the consequences of the pandemic on the performance of ongoing contracts, but also on the business activity, a common situation concerns the performance of obligations stipulated in a contract having as object the purchase of hardware and software products and services. concluded at the beginning of January of this year, thus prior to the “official” appearance of COVID-19.
The case study assumes that a company registered in Romania, as a service provider, faces the impossibility of fulfilling its obligations, in the sense that it has issued a firm order for a significant amount of control and communications equipment to a company that is part of the list of deliverables related to the contract. The latter company confirmed receipt of the order and estimated the delivery date at the beginning of February. The company uses parts and components produced in the areas affected by COVID-19 for the production of these parts. Unsurprisingly, the delivery date could not be honored, being modified successively, the last value of the delivery date being the end of March/beginning of April 2020. Most likely, this date will also be modified in the light of the rapid evolution of the measures and restrictions imposed by the spread of COVID-19.
In relation to the aforementioned contract, we can assume that the parties have contractually set criteria for the intervention of the force majeure and the exemption of liability in such a case.
Faced with this situation, the delivery company that could not honor the order issued by the Romanian company communicated that the logistical/sourcing processes on the supply chains involved in the aforementioned contract are affected by the spread of COVID-19.
In this context, the following issues with relevance must be analyzed, namely the extent to which the occurrence of COVID-19 is an event of force majeure, what is the moment of the birth of the force majeure and in what way can this situation be ascertained by the chambers of commerce during the procedure for granting force majeure certificates.
Starting from the applicable legal provisions, respectively art. 1351 para. (2) Civil code, it is necessary to present the elements that define the concept of force majeure. Hence, the major force represents “any external event, unpredictable, absolutely invincible and inevitable”. Force majeure is a cause for exemption from liability, whether or not is provided by the contract.
Thus, the rule is represented by the exemption of liability in the event of an event that corresponds to the concept of force majeure, so as to prevent the execution of contractual obligations. However, the parties may expressly agree that they will be liable in a case of force majeure.
As regards the appreciation of the particularities of the harmful event, as mentioned above, the force majeure must be an external event, which cannot be predicted or avoided, absolutely invincible.
An „external event” is most often represented by extraordinary natural phenomena, foreign to human activity and will. At a rudimentary level, it can be affirmed that what happened and caused damage either in the contractual or the criminal realm, was without the guilt of the person normally called to respond, precisely because it comes from an external fact. It is important to mention that in some cases, the courts did not retain the force majeure in the event of landslides or storms during the summer, and, in other cases, referring to the other circumstances, they validated this exonerating cause.
Further, the event must be unpredictable, this character referring both to the occurance of the circumstance and its effects. Such an event is appreciated taking as a standard the prudence and diligence of a reasonable person.
As for the inevitability and invincibility, this must relate to any person. Even if a phenomenon is unpredictable, it cannot be qualified as a case of force majeure if there has been the possibility of preventing its occurrence or the possibility of avoiding its harmful effects.
Usually, the force majeure clause establishes the obligation to notify the disturbing event and its effects, but also the obligation of taking all necessary measures to reduce the harmful consequences of the event. Other force majeure clauses, in a more developed formulation, also establish the obligation to notify the contractual partner with the intention to apply that clause.
In view of the case study presented above, namely the impossibility of the provider to procure the necessary goods from a supplier that delays the deliveries, thus violating his own obligations, the appearance of COVID-19 can be considered in this context a case of force majeure.
However, in order to fully justify the force majeure, the Romanian company should also prove that the equipment it undertook to deliver is not an unascertained good and also to prove the existence of clear contractual specifications, in the sense that the supplies cannot be replaced and cannot be produced by another manufacturer, other than the one in the affected area.
At the same time, the Romanian company should prove that it has specified, at the time of the conclusion of the contract, that its supplier is exclusive and, for greater security, should try to obtain from the acquirer his acceptance regarding a possible replacement.
Although the rule in the matter of force majeure is represented by the discharge of contractual liability, however, the performance of the contract should be primordial.
Altogether, for the purpose of this analysis, it is also relevant the moment COVID-19 has appeared, considering that force majeure is always represented by an unpredictable event. Thus, we should question to what extent a force majeure event was unpredictable at the moment the contract was concluded, respectively in early January, given that at that moment there were at least public news regarding this event ever since late December 2019.
However, consider that what should be taken into account are not the information available to the public by the means of the mass-media, but the fact that the World Health Organisation (“WHO”), through the International Health Regulations and Emergency Committees, on the date of 30.01.2020, on the occasion of the second reunion, has taken the final decision on declaring a public health emergency of international concern caused by the new corona virus epidemic in the Popular Republic of China.
According to the International Health Regulations, a public health emergency of international concern means an extraordinary event which is determined: (i) to constitute a public health risk to other States through the international spread of disease and (ii) to potentially require a coordinated international response.
Thus, it can be considered that the moment when the force majeure event occurred cannot be certified earlier than the date when WHO has declared the public health emergency of international concern. The existence of certain suppositions should not be considered enough to eliminate the unpredictable character of the event, also having in mind that the Chinese public authorities were criticised for their secrecy with respect to the effects and the spread of COVID-19.
Considering the above, force majeure, in case the contractual parties have agreed to expressly indicate epidemics, is noted by the WHO, the entity in charge for the management of health problems worldwide. We mention that, since 2009 until the present, the state of emergency has been declared in 5 situations: in 2009 because of the swine flu pandemic, the poliomyelitis epidemics of 2014, the Ebola epidemics in West Africa in 2014, the Zika epidemics in 2014 and the Ebola epidemics of 2018.
Altogether, we may take into account that the measures recently undertaken by the Romania authorities for the prevention of the further spread of COVID-19 were adopted through acts grounded on the WHO decision. In this respect, we indicate the Government Decision no. 8/09.03.2020 of the Technical and scientific support group for managing highly contagious diseases in Romania, the Decision of the National Council for Special Emergency Circumstances, the Emergency Government Ordinance no. 11/04.02.2020 or the Ministry of Health Order no. 313/26.02.2020.
A different aspect worth mentioning is represented by the fact that the economic operators which find themselves in similar circumstances to those described within our example, which would request individually to the Romanian authorities to “ascertain the force majeure”, it is highly likely that this request would remain unsolved, having in mind the actual context when the activity of state authorities is mostly suspended and the implementation of the measures for preventing the spread of the virus take precedence.
Anyway, it should be remembered that the force majeure must be assessed with respect to the producer of the equipment that must be delivered by the purchaser, who communicates its impossibility to deliver the equipment at the established terms, given that his supply was effected in China, where the epidemics has started.
Moving forward, in accordance with the provisions of Law no. 335/2007 of the chambers of commerce in Romania, respectively art. 28 par. 2 letter i), the National Chamber (i.e. the successor of the Chamber of Commerce and Industry of Romania) fulfils the following main tasks: “(…) i) endorses, upon request, for the Romanian companies, based on documentation, the existence of force majeure cases and its effects over the performance of international commercial obligations”.
The part which may prove to be difficult, at the current moment, is represented by the documentation necessary. In this respect, the economic operators that will initiate this course of action will prove the existence of the force majeure case, i.e. the COVID-19 epidemics, by the documents internationally circulated, respectively the Report of the WHO from 30.01.2020 for declaring the public health emergency of international concern, as well as by the official documents of the Romanian authorities that ascertain the presented documents.
However, should we consider the previous example, where the production of a supplier is affected and, thus, the delivery to a purchaser that is also unable to respect his delivery terms, we consider that an essential element with a high probative value would be represented by the document that ascertains the force majeure affecting the activity of the supplier.
In this respect, it is well known that starting with 30.01.2020, the Popular Republic of China releases force majeure certificates issued by the China Council for Promoting International Trade, also known as the Chamber of International Commerce of China (“CCPIT”). The declarations of CCPIT representative indicates the purpose of issuing these certificates, respectively providing support for companies which are in conflict with international trade partners.
Declaring the force majeure, however, supports only the Chinese suppliers and the losses will be fully supported by the producer companies.
According to CCPIT, the force majeure certificate represents a document issued on request in order to be used in eventual commercial disputes. Such a document may exempt the parties, either partially or totally, from their liability that could be generated by the non-performance, the faulty performance or delayed performance of contractual obligations.
As per the to the declarations of CCPIT representatives, the force majeure certificates are recognised by governments, customs, chambers of commerce and companies from over 200 countries.
Approximately 1.600 certificates of force majeure were issued for companies from over 30 industries until mid-February, covering, until this moment, contracts of an estimated value of 110 billion yen (942.590.000 EUR). At the same time, the Council adds the fact that several companies have presented the certificate to their countries and have thus convened to launch new orders at a future date.
Consequently, with respect to the matters presented above, a entity that could facilitate the documentation representing a solid ground for obtaining certificates in Romania could be represented by the Chamber of Commerce and Industry Romania-China (“CCIRC”), a bilateral chamber. On May 15 2019 the agreement of bilateral cooperation between the Chamber of Commerce and Industry Romania-China and CCPIT Jiangxi Sub-Council.
Anyway, the National Chamber and the district chambers of commerce are the only entities with the legal competence to issue the certificates, while the bilateral chambers of commerce (CCIRC, Amcham, AHC Romania, BRCC stc.) do not have this competence, considering that they are founded on the grounds of the Government Ordinance no. 26/2000 regarding associations and foundations.
This material has analysed possible mechanisms available for an economic operator for which it became impossible to perform its contractual obligations, in the context of the COVID-19 epidemics, in such a manner that would prevent a litigious stage.
In this respect, we mention that the force majeure, independent on the fact that it was caused by an epidemics like the current one or by other specific events, it must be analysed on a case by case basis, given that there is no universal standard neither with respect to the documentation presented in front of the chambers of commerce, nor to the evidence that should be presented in front of the courts of law. For this reason, the chambers of commerce should provide a certain flexibility to the operators that request the ascertain of force majeure with respect to the documents submitted as evidence.
As a conclusion, we consider that the economic operators should revise as soon as possible their on-going contracts that could be influenced by the COVID-19 epidemics, and those that are about to conclude this type of contract should also include explicitly the current situation and liability limitations, as well as to prepare negotiation schemes that would allow the party unable to perform its contractual obligations to benefit from postponements or, on the other hand, to offer discounts.