Slovakia: Force Majeure - Hardship in relation to Conflict and Sanctions

Slovak Act No. 289/2016 Coll. on the implementation of international sanctions (the “Act”) provides, inter alia, legal framework for implementing international sanctions. The Act also sets out rules for administrative forfeiture of the money and property of sanctioned entities. If the European Union imposes sanctions, these sanctions will be implemented and executed according to the Act.

Slovak civil law contains no specific provisions addressing consequences of war or sanctions towards contracts. However, the Civil Code and Commercial Code provides general statutory concepts, which could be triggered in the event of war or sanctions (e.g. force majeure clauses).

Contractual implications arising from war or sanctions may be addressed by provisions in the Commercial Code, such as:

Subsequent Impossibility of Performance

Section 352

1. An obligation shall also be deemed fulfillable if it may be fulfilled with assistance from another party.
2. An obligation shall also become non-fulfillable if the legal regulations issued after conclusion of the contract, where the effectiveness of such regulations is not limited in time, prohibit the debtor’s conduct to which the debtor is obligated, or require an official permit which has not been granted to the debtor despite their due efforts to obtain one.
3. The creditor may withdraw from the contract with respect to the part of the fulfilment which has become impossible, if without provision of the fulfilment which has become impossible this part loses economic importance for the creditor with regards to its nature or with regards to the contract’s purpose which follows from its content or which was known to the other party at the time of concluding the contract. The same shall apply to partial fulfilment.
4. The debtor is obliged to prove impossibility of fulfilment.

Section 353

A debtor whose obligation has expired due to impossibility of fulfilment is obliged to compensate the damage thus caused to the creditor, unless the impossibility of fulfilment was caused by circumstances excluding liability (Section 374). The provision of Section 373 et seq. shall apply accordingly to compensation of damage.

Section 374 Circumstance excluding liability

1. A circumstance excluding liability shall be deemed as an obstacle that occurred independently of the intent of the obliged party and that prevents them from fulfilling their obligation, if it may not be reasonably assumed that the obliged party could have averted or overcome this obstacle or its consequences, or that they could have foreseen this obstacle at the time when the obligation was established.
2. Liability is not excluded by an obstacle that occurred only after the obliged party was already in default in fulfilment of their obligation, or by an obstacle that arose from their economic situation.
3. The effects excluding liability are limited only to the period while the obstacle to which these effects are connected lasts.

Frustrating the Purpose of a Contract

Section 356

1. If the basic purpose of a contract, which was explicitly expressed therein, is frustrated after its conclusion in consequence of a fundamental change of the circumstances under which the contract was concluded, the party affected by the frustration of the purpose of the contract may withdraw from it.
2. A change of circumstances under Subsection 1 shall not be deemed a change in the property relations of either of the parties or a change of the economic or market situation.

Section 357

The party that withdrew from the contract under Section 356 is obliged to compensate the other party for the damage they incurred by the withdrawal from the contract. Section 351 shall apply accordingly to the effects of withdrawal from the contract.

Yes, war or sanctions can trigger statutory provisions of the Commercial Code covering force majeure events. If performance is impossible due to acts of war and/or the sanctions, it  is more likely that the clauses on frustration of a contract or impossibility of performance would be triggered. When performance of a contract is impossible, a party entitled to fulfilment has a right to withdraw from the contract. A party in breach of a contract due to war or sanctions can evade liability by arguing that circumstances excluding liability have been met.

In order to prevent a dispute over whether an event constitutes force majeure, the parties are advised to include a definition of a force majeure event in the contract. However, such a clause needs to be drafted carefully. Also, under Slovak law parties should ensure that any potentially conflicting terms are eliminated. Having a well-drafted clause could, in principle, release a non-performing party from performance or contractual fines.

Slovak Commercial Code generally defines unforeseen circumstances as obstacles:

• which occurred independently of the intention of the obliged party that prevent the obliged party from fulfilling its obligation; and
• which it may not be reasonably assumed that the obliged party could have averted, overcome (this applies to both the event and its consequences) or foreseen at the time the obligation was agreed upon.

In such a case, a key consideration is: what courts shall have jurisdiction. Whether based on contractual or statutory provisions, the applicable law and jurisdiction often goes shoulder to shoulder. 

It appears that the foreign country could choose not to impose sanctions or follow them. In such an event, it is not inconceivable that the foreign court will reject the claim by invoking force majeure unforeseen circumstances as a result of war or sanctions. 

In the event that Slovak courts have jurisdiction, we are of the view that these courts will apply the Act even if a foreign law has been declared applicable. 

Yes, a Slovak party defaulting on obligations can be sued. Given that Council Regulation (EU) No. 833/2014 Art. 11 provides that no claims shall be satisfied in connection with the performance of any contract or transaction affected by sanctions, we believe that the Slovak court will reject a claim.

We recommend including a well-drafted force majeure clause into your commercial contracts. Having a well-drafted clause could prevent uncertainty arising from the broad but vague statutory provisions.