Expert Guide on Force Majeure and Unforeseen Circumstances in the Context of Global Trade War in Hungary

Although there is no specific force majeure clause in statutory Hungarian law, under Section 6:179 of the Civil Code, if performance becomes impossible, the contract is terminated. Accordingly, the establishment of the existence of a force majeure event in a given case is the sole discretion of the court, which will consider all relevant circumstances and perform a case-by-case analysis.

In general, Hungarian court practice considers force majeure an “irresistible force” of natural or man-made origin, which is absolute in nature and cannot be eliminated by means available to man. Courts require that performance must be – for all practical purposes – impossible in order to be exempt from liability on the grounds of force majeure.

We are not aware of any specific court cases regarding whether the imposition of import tariffs may be considered a force majeure event in commercial contracts. However, according to the consistent judicial practice, changes in economic conditions are part of the business risk of the party affected, so even a major change in price movements and market conditions will not result in the contract being impossible.

Generally speaking, in order to be exempt from liability for breach of contract, a party relying on force majeure must prove that (i) the force majeure event had a direct effect on its performance of the obligations under the contract; (ii) the force majeure event was unforeseeable at the time of the conclusion of the contract; and (iii) the party could not have been expected to prevent the consequences of the force majeure event.

In long-term contractual relationships, the court may modify the contract after its conclusion, if its performance on unchanged terms would harm the substantial legal interests of the requesting party, if 

1. the possibility of the relevant change of circumstances was not foreseeable at the time of conclusion of the contract, 
2. the requesting party did not cause the change of circumstances, and 
3. such change in circumstances cannot be regarded as normal business risks. (Section 6:192 of the Civil Code).

The Constitutional Court of Hungary has established that the above described judicial contract modification is a legal institution that may only be used under special and strict conditions. Modification may be necessary, if certain conditions occur after the conclusion of a given contract that disrupt the economic balance between the parties or causes significant imbalances and thus making the fulfilment of contractual obligations and the continuation of the legal relationship with unchanged terms intolerable for a party.

However, the Constitutional Court, along with judicial practice, determined that economic conditions that affect a significant number of contractual relationships may not serve as the basis for judicial contract modification, arguing that in such a case national legislation is needed to remedy the imbalance of these relations.

As mentioned above, under Hungarian judicial practice, changes in economic conditions, even drastic ones, are part of the business risk of a party, which does not change the substance of the contractual relationship. Damage to interests caused by changes in market conditions can only be remedied by recourse to contractual law. The reciprocal risk-taking nature of contracts generally precludes a change in one party’s circumstances from affecting the other party’s performance of the contract. A change in market conditions affecting both parties, price movements or a possible adverse change in the economic environment should not in itself provide a basis for a unilateral modification of the contract, either by a court or by either party.

Based on the above, it is questionable whether requesting amendment of the contract by courts on the basis of the imposition of the import tariffs would be successful before Hungarian courts. Accordingly, contractual tools agreed upon between the parties (e.g. renegotiation clauses, hardship clauses or any other mutually agreed mechanism) are more likely to work in such a situation. The most effective solution might be to expressly qualify the imposition of new import tariffs as a force majeure event (see below).

We understand that the mentioned contractual tools are not an option in contracts already concluded without them. In such cases requesting amendment of the relevant contract by the court may be an option to pursue.

Example clause:

“The Service Provider shall be exempt from liability for delay in performance or non-performance, if it was impossible for the Service Provider to perform in accordance with the contractual provisions due to an event unforeseeable at the time of the conclusion of the contract which the Service Provider could not have prevented (“force majeure”), in particular earthquake, flooding, lightning, windstorm, other natural disasters. For the sake of interpretation of this point, the parties consider as force majeure in particular the following events: disaster, war, riot, revolution, revolt, civil war, nationwide or otherwise large strike, subsequent change of law, export or import ban, economic embargo, import tariffs and quarantine. The force majeure event shall be in direct connection with the business and services undertaken in the contract by the Service Provider. If the term of the force majeure exceeds 30 days, the Customer is entitled to withdraw from the contract by way of written notice addressed to the Service Provider.”