Table of contents
Source: Windt Legal, lawyers in Rotterdam, 010-2617500
Date: March 27, 2020
Force majeure in times of crisis
I. Introduction
- The global spread of coronavirus (COVID-19) poses unprecedented challenges for everyone. In times of an epidemic – which has now grown into a pandemic – legal issues arise in addition to numerous medical and economic problems.
- This overview will consider the legal concept of force majeure (also known as: force majeure) and the force majeure clause (force majeure clause) found in many commercial contracts. The question is the extent to which a contracting party can successfully invoke force majeure if (whether due to a problem higher up in the chain or not) it cannot fulfill its obligations under the contract (in a timely manner) because of the measures taken to prevent the spread of the corona virus or the economic and other consequences of the corona crisis. There is also the question of what law applies when the parties have not agreed to a force majeure clause and they must fall back on applicable contract law.
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II. Applicable law
- Force majeure can come up in many forms and contractual relationships. For example, force majeure situations relating to sales contracts for movable property between parties located in different countries are covered by the force majeure provision contained in the Vienna Sales Convention.
- In addition, Dutch law also contains a force majeure provision (Article 6:75 BW) and the possibility of amending or dissolving the contract on the basis of unforeseen circumstances (Article 6:258 BW).
- Parties can also choose to exclude the Vienna Sales Convention or Dutch law by agreeing their own force majeure provision in their contract or by excluding liability in their general terms and conditions.
III. The usual situation
- In principle, according to contract law, agreements must be fulfilled (“pacta sunt servanda”). Party autonomy and freedom of contract imply that regulatory law is only intended for situations where the parties have not made any agreements, albeit that legal rules can also be mandatory by placing limits on the parties’ freedom of contract.
- Parties to an agreement who fail to fulfill their agreements (on time) may be placed in default. In the event of a continuing failure, they will be “in default” (Articles 6:74 and 6:81 BW). The consequences of a so-called failure to perform can be grounds for the aggrieved party to rescind the contract or possible damages.
IV. Force majeure
- In times of crisis, agreements may turn out differently than parties initially expected. If these agreements involve a significant financial interest and if non-performance could have serious consequences for a company, it is important for parties to build safeguards into their future contracts. Article 6:75 of the Civil Code only provides that “a default cannot be attributed to the debtor if it is not due to his fault, nor is it for his account under the law, legal act or generally accepted practice.
- One such safeguard by which a contracting party can further protect itself is the inclusion of a (more elaborate) force majeure provision, which aims to eliminate the risk that it will be held liable for a breach of performance resulting from – as now – the effects of an epidemic or pandemic. In line with the freedom of form of a contract, the force majeure provision can have the content desired by a contracting party (in its general terms and conditions) or by both contracting parties (in the contract). Parties can include a general force majeure provision in their agreements or opt for a more elaborate provision naming and regulating (the consequences of) specific situations.
Ultimately, what matters is what the parties believe justifies a liability exclusion. For example, the supplier who can no longer deliver due to the closure of airspace can invoke force majeure – if it has stipulated to do so. Thus, he cannot be held liable for damages resulting from his omission. It may also be possible to do so by relying on Article 6:75 (see under 4.1 and par. 6) (to the extent applicable), but the question then arises whether the conditions of that provision have been fully met.
- The effect of a successful invocation of force majeure is that the contracting party who is supposed to do something and cannot do it due to circumstances is not liable for the consequences of failing to perform, such as a delivery of goods.
- Ultimately, the assessment of force majeure comes down to the linguistic interpretation of the clause and the meaning that the parties mutually could reasonably attribute to it under the circumstances and what they could reasonably expect from each other in this regard. Therefore, to avoid confusion, it is advisable to word the clause as precisely as possible and leave as little as possible to interpretation.
- Force majeure can have several consequences, namely that aggrieved contracting parties cannot claim performance or damages, cannot request suspension or rescission of the contract or, for example, no obligation to renegotiate contract terms arises.
V. General terms and conditions
- Parties may also exclude liability in their general terms and conditions. The general terms and conditions must then be formulated – on penalty of voidability – in such a way that they cannot be considered unreasonably onerous and the other party must be able to take cognizance of the general terms and conditions in the legally correct manner.
- The law (Article 6:231 sub a of the Civil Code) defines general terms and conditions as “one or more clauses drafted for the purpose of being included in a number of agreements, with the exception of clauses indicating the essence of the performance, insofar as the latter clauses are formulated in a clear and comprehensible manner.
- In principle, a party who has accepted the general conditions as a whole cannot take the position that one or more clauses of those conditions did not come into force between the parties because he did not know the content of those clauses (Article 6:232 of the Civil Code).
Notification
- The party drawing up the general terms and conditions (the “user”) has, among other things, offered the other party the opportunity to take cognizance of the general terms and conditions if he has made the general terms and conditions available to him (Article 6:234(1) BW). In principle, the user should have provided the general terms and conditions to the other party no later than the time the contract is concluded.
- With regard to contracts entered into online, a hyperlink to the general terms and conditions is permitted as long as the general terms and conditions are easily accessible to the consumer and can be stored (Article 6:234 paragraph 2 of the Civil Code).
- If the contract was not entered into online but the general terms and conditions were provided electronically, this requires the express consent of the other party (Article 6:234 paragraph 3 of the Civil Code).
- In conclusion, it is important to note that these rules regarding knowledge do not apply within a Business-to-Business (B2B) context, as these relationships are explicitly excluded by the legislator in Article 6:235 of the Civil Code. In such relationships, the extent to which the business counterparty was able to take proper cognizance of the general terms and conditions is assessed on the basis of reasonableness and fairness (Sections 6:2 and 6:248 of the Civil Code).
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Unreasonably onerous
- In assessing the extent to which a clause is unreasonably onerous, the legislator has distinguished between clauses that are unreasonably onerous towards a natural person, who is not acting in the exercise of a profession or business (B2C), and with regard to the clauses under randnr. 5.7 said B2B relationship.
B2C
- The clauses included in the black and gray list that are (presumably) unreasonably onerous are specifically aimed at consumers, i.e. those who are not acting in the exercise of a profession or business. Incidentally, a clause – given the circumstances of the case – may also be considered unreasonably onerous if it is not included in one of these two lists. In that case, it falls back on what is (un)acceptable according to the standards of reasonableness and fairness (Articles 6:2 and 6:248 of the Civil Code).
- In the B2C relationship, a clause is in any case unreasonably onerous if it is included in the black list of Article 6:236 BW and is presumed to be unreasonably onerous if it is included in the gray list of Article 6:237 BW. This note deals only with the clauses on exclusion of liability due to defective performance of the contract.
- In the B2C relationship, the question of whether a term is unreasonably onerous largely coincides with the question of whether the term is unfair within the meaning of the Unfair Terms Directive.*1 This is different only if Dutch law has gone further than the Directive by means of a black or grey list provision.
- The Unfair Terms Directive provides that a term is unfair if (1) there is a significant imbalance, (2) the significant imbalance is contrary to good faith, and (3) there is a lack of transparency. Unfairness is assessed at the time the contract was concluded, taking into account all the circumstances of which the consumer could have known at that time.
- The black list contains four clauses that specify when the exclusion of liability in the event of default is considered unreasonably onerous. First, unreasonably onerous is the clause that completely and unconditionally deprives the consumer of any right to performance (Section 6:236(a) of the Civil Code). Second, unreasonably onerous clauses are those that affect the contractual balance by limiting the consumer’s right to rescission (Article 6:236(b) BW) or suspension (Article 6:236(c) BW). Finally, unreasonably onerous clauses are those that make the consumer’s rights in the event of a breach of performance dependent on the user’s attitude, or oblige the consumer to first take legal action against a third party (Article 6:236(d) BW).
- The gray list is based on the presumption that a number of clauses are unreasonably onerous, which presumption – taking into account the circumstances of the case – can possibly be refuted by the user (Article 6:237 of the Civil Code). Firstly, it is presumed that clauses are unreasonably onerous (Article 6:237 sub b BW) if those clauses substantially limit the scope of obligations of the user arising from contract, law, custom and reasonableness and fairness, contrary to what the consumer could reasonably expect. Furthermore, it is presumed that a clause is unreasonably onerous if invoking it enables the user to release himself from his obligation to be bound by the contract or gives him the authority to do so, other than on grounds stated in the contract as a result of which performance by the user cannot (or can no longer) be required (Article 6:237 sub d BW).
- Based on Article 6:246 BW, it is not possible to deviate from Articles 6:231 to 6:244 BW concerning the regulation of general terms and conditions in relation to consumers.
B2B
- Both for the question of whether the conditions for acquaintance with general terms and conditions are met and for the substantive assessment of general terms and conditions in a B2B relationship, the standard of reasonableness and fairness applies (Sections 6:2 and 6:248 of the Civil Code).
- In the B2B situation, the court assesses whether the exclusion of liability (exoneration clause) in the general terms and conditions is unreasonably onerous according to the standards of reasonableness and fairness, or whether reliance on this clause is unacceptable according to the standards of reasonableness and fairness in the given circumstances (article 6:248 paragraph 2 BW).*2
- In the B2B relationship, parties can in principle agree on whatever they want, unless such an agreement is contrary to reasonableness and fairness and therefore unacceptable under the circumstances.
- The exception to this is that the black and gray list (for B2C relationships) can play a role in the B2B relationship in the case of a “small” entrepreneur with an obviously weaker position than his counterparty. This can be helpful for a small business owner if he has to deal with a clause in the general terms and conditions of his much larger or more powerful counterparty, and that clause would have been unreasonably onerous for the consumer in the case of a B2C relationship.
VI. Statutory force majeure
- In the event that the parties have not stipulated a separate force majeure and have not excluded liability in their general terms and conditions, they may fall back on the force majeure regulation laid down by law, namely that a shortcoming cannot be attributed to the debtor if it is not due to his fault, nor is it for his account by virtue of the law, legal act or generally accepted practice (article 6:75 BW).
- The burden of proof regarding force majeure lies with the debtor, who must prove that performance is impossible, is not due to his fault and cannot be remedied in any other way.
- Force majeure may result in the creditor not being able to claim performance or compensation, or to request suspension or dissolution of the contract.
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VII. Unforeseen circumstances
- Furthermore, Dutch law (Article 6:258 BW) offers the possibility to the court, at the request of one of the parties, to modify a contract or to dissolve it in whole or in part on the basis of unforeseen circumstances which are of such a nature that the other party, according to standards of reasonableness and fairness, may not expect unaltered maintenance of the contract.
- Note that a successful invocation of contingencies does not seem possible in the case of contracts that came into existence not before but during the corona crisis. At a time when (far-reaching) government measures had to or could be taken into account. The point of reference is the time of conclusion of the agreement. The court will test a contingency appeal based on the circumstances of the case. It follows that in the case of (purchase) agreements to supply goods concluded now – during the corona crisis – suppliers and buyers can expect that cross-border supply obligations or obligations to supply goods to be procured from third parties in another country (with the closing of the borders) will be more difficult to fulfill, which problems then do not count as “unforeseen.
VIII. Opinion
- To prevent the supplier from being held liable for the damages that follow from the failure to perform, the supplier can build in safeguards.
- The seller would be wise to agree on a proper (i.e., specific and to the market and type of goods) force majeure arrangement in order to exclude liability where it cannot fulfill its delivery obligations (on time) due to the crisis.
- A successful invocation of force majeure depends on the content of the clause and the time of the conclusion of the contract. Therefore, the question of whether the corona crisis will count as force majeure must be considered on a case-by-case basis.
- However, prevention is better than cure. The importance of a tailored force majeure provision should not be underestimated Too general a provision or reliance on the general statutory scheme can create a lot of uncertainty. It depends on the type of company how the force majeure arrangement should be framed.
- Regarding the exclusion of liability in the general terms and conditions, a company in the B2C relationship should mainly – but not exclusively – consider the black and gray list.
- In the B2B business-to-business relationship, there is no legal guidance in the form of the black and gray list. It is important for a company entering into an agreement with another company to be well aware of its legal position vis-à-vis the other party.
- The extent to which an exemption clause in general terms and conditions is unreasonably onerous by the standards of reasonableness and fairness in a specific situation, or whether reliance on it is unacceptable by the standards of reasonableness and fairness in the given circumstances, always requires a case-by-case assessment.
- The margin of uncertainty can be (somewhat) reduced by taking into account, among other things, the scope offered by law and case law and the specific sector and (market) position of the user of the general terms and conditions prior to the formulation and inclusion of an exoneration clause in general terms and conditions in a B2B relationship.
*1 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ L 95 (1993) p. 4), last amended by Directive 2011/83/EU (OJ. L 304 (2011) p. 64.
*2 Cf. HR June 18, 2004, NJ 2004,585, ECLI:NL:HR:2004:AO6913, para. 3.7; Arnhem Leeuwarden Court of Appeal, ECLI:NL:GHARL:2018:549, para. 4.8; Rb. Rotterdam April 11, 2018, NJF 2018/429,
If you have any questions based on this blog, please contact:
maarten.smitsvanoyen@xentys.nl
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