Law and regulation of force majeure in Serbia

1. Is there legislation on force majeure in your law system?

The Law on Contracts and Torts (in Serbian: Zakon o obligacionim odnosima) (“LCT”) is the relevant piece of Serbian legislation for force majeure. The LCT does not contain a specific definition of the term “force majeure”. However, the LCT has several provisions relating to force majeure, which imply that force majeure is an external event, which could not have been predicted, avoided or overcome by the parties. 

The following provisions of the LCT are relevant for force majeure:

  • Article 354 contains a general rule on the cessation of obligations, according to which an obligation will cease when the performance becomes impossible due to circumstances for which the debtor is not responsible.
  • Article 137 contains specific rules on the cessation of obligations in bilateral contracts due to impossibility of performance: it distinguishes between (i) complete impossibility of performance and (ii) partial impossibility of performance. As to (i), the obligation of the other party (i.e. the party whose obligation under the contract can still be performed) will also cease. If the other party has performed its obligation partially, it has the right to restitution (i.e. the return of what has been performed). If this is not possible, the other party may request compensation. As to (ii), the other party may either unilaterally terminate the contract if partial fulfillment does not correspond to its needs, or request a proportionate reduction of its obligations.
  • Article 177 contains a general rule on exemption from liability for damages caused by an external event that could have not been predicted, avoided or overcome. This article is typically referred to as a basis for the definition of force majeure.
  • Article 263 contains a specific rule on exemption from liability for damages caused by non-performance of contractual obligations. To be exempted from liability, the contracting party has to prove that it was unable to perform the contractual obligation (or was delayed in performance) because of an event (not necessarily an “external event”) that happened after the conclusion of the contract, which could not have been prevented, avoided or overcome.
  • Article 133 contains rules regarding changed circumstances: if the circumstances under which the contract was entered into subsequently change, the contract may be amended (if possible and both parties agree) or terminated (only by court order). The main requirement is that the performance of obligations under the contract must be harder for one party or that the purpose of the contract must no longer be capable of being fulfilled, in both cases provided that the contract is no longer in accordance with the parties’ expectations and that it would be unfair for it to remain in force.  

2. If so, what is the text of the force majeure clause in your civil code?

The relevant provisions are as follows:

Article 354. (1) An obligation shall come to an end should its fulfilment be impossible due to circumstances for which the debtor is not to blame. 
(2) A debtor shall be expected to prove the existence of the circumstances exempting him from liability.

Article 137. (1) Should performance of an obligation by one party in a bilateral contract become impossible due to an event not attributable to either party, the other party's obligation shall be terminated too, while a party performing part of his obligation may request restitution according to the rules of restitution in case of unjust acquisitions. 
(2) Should partial impossibility of performance be due to events not attributable to either party, one party may repudiate the contract if the partial performance fails to meet his needs; otherwise the contract shall remain valid, while the other party shall be entitled to request a proportionate reduction of his obligation.

Article 177. (1) An owner shall be exempt from liability by proving that injury or loss took place due to a cause outside the object of property, which could not have been foreseen, avoided or eliminated.

Article 263. A debtor shall be released from liability for loss by proving his inability to perform the obligation, or delay in performing the obligation, was due to circumstances taking place after the contract was entered into which he was unable to eliminate or avoid.

Article 133. (1) Once the parties have entered into the contract, should circumstances emerge which hinder performance of the obligation of one party, or the purpose of the contract cannot be realized, and it becomes evident that the contract  no longer meets the expectations of the contracting parties, and that, generally speaking, it would be unjust to maintain the contract in force – the party having difficulty performing its obligation may request its repudiation. 
(2) Repudiation of a contract may not be requested if the party claiming the changed circumstances had a duty, at the time of entering into contract, to take into account such circumstances, or if he could have avoided or surmounted them. 
(3) A party requesting repudiation of a contract may not rely on changed circumstances which emerged after the expiration of the period during which the party was required to perform his obligation. 
(4) A contract shall not be repudiated should the other party offer or accept that the relevant terms of the contract be altered in an equitable way. 
(5) After a contract has been repudiated, the court shall, at the request of the other party, impose a duty against the party requesting it, to compensate to the other party an equitable part of the loss sustained due to repudiation.

Article 268. A contracting party responsible for notifying the other party of facts relevant for their mutual relationship, shall be liable for loss sustained by the other party because of non notification or delay.

3. Is this mandatory or are parties free to regulate force majeure clauses?

Parties are free to mutually regulate their rights and obligations under their contracts within the boundaries of the mandatory provisions of the law. The same applies for force majeure clauses. Some of the above provisions of the LCT are mandatory, but the parties are free to regulate their rights and obligations in more detail as long as their agreement is not contrary to those mandatory provisions.
In general, it is common for parties to agree upon such clauses (especially in, e.g. construction or lease agreements), as they can allow them to regulate force majeure in more detail, e.g. concrete circumstances (such as war, disease) or duty of notification. 

4. If it is regulatory, to what extent are parties free to regulate such clauses (e.g. do parties have to take principles of reasonableness and fairness into account) and if so, in what way?

Parties are free to regulate force majeure clauses to the extent permissible under the principle of good faith and fair dealing, as well as the principle of equality. The clauses must also be in accordance with public order (i.e. typically encompassing provisions contained in the Constitution of the Republic of Serbia), mandatory laws and moral principles.

5. If a contract just says you can terminate for “force majeure” is there any guidance/case law as to what this means (in the absence of it being defined in the relevant contract)?

Please see the answer to the question 1, above. Case law and jurisprudence typically define force majeure as an external event, which could not have been predicted, avoided or overcome. According to legal commentary on the LCT, this definition derives from article 177 (1) of the LCT, above.

6. Is there a difference in all of this in B2B transactions versus B2C transactions?

The provisions in the LCT relating to force majeure apply to both B2C and B2B transactions. In general, B2C transactions are regulated more strictly than B2B transactions. A clause is more likely to be considered invalid because it imposes an unreasonable disadvantage on the other party if the clause is part of a B2C contract, as consumers enjoy a higher level of protection under Serbian law.

7. Is there a difference in judgement when the force majeure clause is laid down in a contract or in T&C’s?

In principle, no. General terms and conditions set out by one contracting party, whether contained in a contract or referred to in the same, supplement specific arrangements between the parties and are as a rule equally binding. 

8. Do you have examples of force majeure clauses which you think (would) work well in practice?

It is recommended that parties draft force majeure clauses on a case–by-case basis, considering the particularities of the specific type of agreement in question. 

In general, the following basic recommendations apply when drafting a force majeure clause: (1) the parties should list the specific events and circumstances considered to be force majeure events, and provide for a general clause covering all similar but unspecified cases; (2) the parties should include an obligation to notify in the event of force majeure (specifying to whom and at what time the event should be notified and the degree of accuracy with which the event must be described); and (3) the parties should also set out their respective rights in the event that a force majeure occurs.

9. Do you (already) have an example of a force majeure clause which is “corona future proof” or “virus proof” and you willing to share that with us?

N/A

10. Are there any alternative remedies that a party could consider based on being unable to perform a contract due to the corona virus?

In general, depending on the subject matter of the contract, the specific effects of the COVID-19 outbreak and any state measures imposed as a consequence, one could rely on the doctrine of “changed circumstances”. If circumstances change under which the contract was concluded, the contract may be amended (if an amendment is possible and both parties agree) or terminated (which is possible only by court order). The main requirement is that the performance of obligations under the contract is harder for one party or that the purpose of the contract can no longer be fulfilled. In both cases, this requirement applies, provided that the contract is no longer in accordance with the parties’ expectations and it would be unfair for the contract to remain in force. 

With this in mind, it is important to note that on 12 November 2020, the Serbian government adopted amendments to the Law on the protection of citizens from infectious diseases. These amendments included the addition of COVID-19 to the list of infectious diseases over which epidemiological surveillance is carried out and against which measures for prevention and control of infectious diseases are to be carried out. This change may provide additional grounds for arguing force majeure and makes an inability to perform due to COVID-19 easier to prove in certain cases and in vaguely worded contracts.   

11. Is there anything else we should know or you would like to share on this topic?

N/A

Raško Radovanović