Many enterprises in various sectors are suffering due to the outbreak of the COVID-19 virus (Coronavirus), which has disrupted their business through non-performance of contractual obligations, supply chain disruption, postponed or cancelled business trips, absent employees, etc.
In this article, we will provide legal insights to the concerned business owner confronted with the non-performance of contractual obligations due to the impact of the Coronavirus. First, we will discuss the general legal principles and exceptions on non-performance from a Belgian private law perspective. Afterwards, we will briefly discuss the benefit of having tailor-made contractual clauses in place.
General principles regarding liability for non-performance of contractual obligations under Belgian law
As a general rule, a party to a contract who must perform under the contract will be held liable in the event of non-performance. In this respect, Belgian law makes a distinction between two types of contractual obligations, i.e.:
- The "reasonable effort obligations" ("middelenverbintenis" / "obligation de moyens"), whereby the party who is obliged to perform will only be held liable insofar as the adverse party demonstrates that the former has not made the efforts with respect to its contractual obligation that could have been expected from a normally diligent and thoughtful person placed in the same concrete circumstances (so-called "bonus pater familias" criterion);
- The "achieved results obligation" ("resultaatsverbintenis" / "obligation de résultats"). The mere fact that the party has not achieved the expected result with respect to its contractual obligation suffices to hold that party liable.
Whether a contractual obligation is regarded as a reasonable effort obligation or a results obligation largely depends on the wording and interpretation of the contract.
Under Belgian law, there are three legal grounds to be considered to justify the non-performance of contractual obligations, i.e.: (i) force majeure, (ii) an external cause and (iii) frustration ("imprevisieleer" / "imprévision").
With respect to the Coronavirus, each of these exceptions should be considered as justification for non-performance and are particularly relevant for result obligations since successfully arguing one or more of these three cases will exempt the non-performer of contractual liability, regardless of the fact that the contractually agreed result was not achieved.
i) Force majeure
Under Belgian law, force majeure encompasses events that occur outside of any demonstrable human action. Generally accepted force majeure events are natural death, sudden illness, natural phenomena such as earthquakes or lightning strikes, etc.
According to the Belgian Supreme Court, the non-performer is exempted from liability if (i) she/he proves that it was absolutely (or at least reasonably) impossible to perform his/her obligations, (ii) that the event that prevents the performance of the contractual obligation is not caused by the act or omission of the non-performer and (iii) that the event was unforeseeable in nature.
For Coronavirus, an obvious example would be the argument that it is impossible to perform the contractual obligations due to the illness of (the employees of) one of the contractual parties. However, not every illness justifies the non-performance of a contract and Belgian judges apply very strict criteria, often requiring the non-performer to demonstrate that their personal involvement was required for the fulfilment of the obligations and that it would have been impossible to have a third party perform the obligations on behalf of the non-performer.
Moreover, it is often required to provide evidence that the illness is unforeseeable in nature. This requirement is principally considered at the time the contract was concluded. Therefore, one of the apparent issues for contracts concluded after the Coronavirus outbreak is that it will be more difficult to argue that the non-performance was unforeseeable.
Considering these issues, it becomes clear that the legal principles of Belgian private law alone do not provide sufficient warranties to protect your business from liability due to Coronavirus-related non-performance of your contractual obligations. Consequently, the diligent business owner should carefully consider implementing or updating contractual clauses in this regard.
ii) External cause
An external cause relates to acts of third parties the non-performer is not responsible for, such as a sudden strike or a decision by the government. Particular Coronavirus consequences that could be considered as an external cause include a government-imposed flying ban, an import ban, export ban, or transportation bans in general, government-issued lock-downs, etc.
In order to qualify for the external cause exception to liability, the Belgian Supreme Court applies the same test as the one specified above under section i.
Contrary to force majeure and external cause, the so-called "frustration doctrine" is the result of Belgian jurisprudence and is not directly embedded in Belgian legal provisions of private law.
An event may be considered as "frustration" when the contractual obligation is discharged upon the occurrence of a frustrating event, by no fault of either contracting party, rendering the contractual obligation fundamentally more difficult (but not impossible) to either one of the party (e.g. by imposing a disproportionate burden on one them which he/she would not have had under normal circumstances).
The main difference with the other two exceptions is that the performance of the obligation should not be "impossible". Even though the frustration doctrine is not generally accepted under current Belgian law, the Belgian legislator intends to implement the frustration doctrine in the new civil code (the draft bill has, however, not yet passed parliament and is as such not yet legally binding). Therefore, claiming non-performance under the frustration doctrine due to the Coronavirus (without having a contractual provision to that extent in place) seems particularly difficult.
As the principle of contractual freedom is one of the main premises of Belgian private law, parties may have agreed beforehand that the outbreak of a virus (or any consequences thereof, e.g. a transportation ban) would be considered as one or more of these three aforementioned legal exceptions. In that event, the wording of the contract will be essential for the determination of whether the contracting party is to be exempted from liability for the non-performance.
Such contractual provisions often also include a foreseeability clause, mitigation clause, the requirement to provide evidence that the non-performance is actually impossible (force majeure or external cause) or almost impossible (frustration) and notice requirements. Diligent business owners will consider each of these specifications carefully and consult a professional before issuing a notice to their contractual counterpart indicating their decision not to perform any of the contractual obligations.
If you have any questions regarding the application of force majeure (or similar) clauses in your contract or the application thereof under Belgian private law, and/or if you are currently negotiating a contract and you desire professional support with the negotiation and drafting of such clauses, please do not hesitate to reach out to your contact within the Belgian law practice of Dentons Brussels. We can provide you with tailor-made assistance at short notice and, as the world's biggest law firm, we are well experienced and prepared to assist you with any implications that may arise due to the global Coronavirus pandemic.
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.