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Coronavirus and force majeure in contractual relationships

Is it possible to make a successful force majeure appeal due to the measures taken in connection with coronavirus? Can contractual deadlines be extended if employees are in mandatory quarantine? Is it possible to terminate a contractual relationship on the grounds that performance is impossible?

The extraordinary measures adopted by the Ministry of Health due to the spread of coronavirus do not only affect merchants in international supplier relationships, but are also making themselves felt in domestic business across the board. This situation gives rise to questions of immediate interest to merchants and businesses whose economic activities are affected by the Ministry of Health measures.

Cases of force majeure in Czech law can be handled by applying the legislation on liberation from liability for breach of contractual in the Civil Code, which allows for an extraordinary, unpredictable and unsurmountable obstacle created independently of the will of one of the Parties. The UN Convention on Contracts for the International Sale of Goods (CISG ), which will also often be applied to international contractual relationships, contains similar wording.

Each case will require assessment of the extent to which the measures adopted had an impact on specific performance under a contractual relationship, but in general we can state that an epidemic and related restrictions can be qualified as force majeure. A merchant claiming force majeure under these circumstances will have to prove that a specific obstacle prevented them from performing their obligations. If they can prove this, they will not be held liable for breach of contractual obligations and they will be able to extend deadlines for delivery of goods or services to account for the duration of the obstacle. Under certain circumstances where the measures adopted bring a company’s operations to a standstill, some specific cases could allow for dissolution of the obligation due to the impossibility of performance.

Keep in mind, however, that some legal systems do not recognize force majeure as a concept. In such cases the contract itself will have to have a force majeure clause and list of specific extraordinary circumstances, definition of the impact of force majeure on the contractual relationship, and notification obligations regarding the existence and duration of force majeure.

Considering the potential complications relating to the measures adopted, it would be appropriate to proceed as follows:

• Identify and check contracts with clients or suppliers in areas that are at risk;

• Define the missing performance under contractual relationships and the risk arising from failure to meet deadlines;

• Determine the governing law for the contractual relationship and whether the contract contains a force majeure clause;

• In cases where obstacles are anticipated, notify the contracting party of the existence of force majeure by the deadlines given in the force majeure clause, or immediately after discovering them.

The above also applies to a merchant acting as the client receiving goods or services as well as to suppliers whose performance is at risk due to the extraordinary measures taken.

A legal assessment will need to be done on specific cases regarding the degree to which the extraordinary measures affected the contractual relationship and whether a force majeure claim can be made.

We will be happy to support you with the legal assessment of your contractual relationships and advise you on the most effective steps to take with regard to your contractual partners.