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Delivery problems and the coronavirus: force majeure or not?

28/02/2020

More and more companies are starting to face problems because of the COVID-19 virus, as the coronavirus is called officially. One of the consequences of the coronavirus is that the production and transport of goods from China are currently at a low level. It was recently announced that this has prompted Coolblue to increase the prices of products in its webshop, and that Blokker is not receiving all its products. Action and various supermarkets are facing similar problems. Now that the coronavirus has also been detected in the Netherlands, the consequences may become even more noticeable.

Can companies such as the suppliers of Coolblue, Blokker and Action successfully invoke force majeure? Or will they be receiving claims for breach of contractual obligations?

What is force majeure?

According to the law, force majeure refers to an event that renders compliance with agreements impossible. Such an event must, moreover, be beyond the control of (in this instance) the supplier and not be for its account. An appeal to force majeure must always be assessed on the basis of the specific circumstances of the case. 

It is not unusual to include a definition of force majeure in agreements or general terms and conditions. This is permitted. This way, the term 'force majeure' can be narrowed or extended. It is possible that epidemics are designated as force majeure in an agreement. It is therefore important to always check the agreement. 

But even without specific arrangements on epidemics, there are various grounds for considering the coronavirus as a situation of force majeure:

  •  The China Council for the Promotion of International Trade has designated the coronavirus as force majeure for Chinese contract parties;
  •  There are rulings by Dutch courts about other epidemics, such as the bird flu, in which an appeal to force majeure was honoured;
  •  In general, an epidemic is beyond the control of the contract parties and is not foreseeable. 

Although this provides a strong basis, it is not possible to give an unequivocal answer to the question of whether the coronavirus constitutes force majeure.

It is always important to check the cause of non-compliance with agreements. It is possible, for example, to make a distinction between a government measure related to the coronavirus ("ban on transport of specific goods by air") and factory stagnation due to illness of personnel. The question is whether the direct cause of non-compliance with agreements comes under the definition of force majeure.

Also important is whether there are reasonable alternatives. If transport by air is not or no longer possible, this does not necessarily mean that transport cannot take place in another way. As a result of circumstances like these, it is possible that one case does involve force majeure while another does not. 

Consequences of force majeure

The result of a successful appeal to force majeure is that compliance cannot be required and that, in principle, no compensation is due. It is also possible that a party has the right to make partial deliveries and/or increase prices. This depends on the agreements in place.

In general, this would entitle the other party to terminate the agreement. This depends on whether the shortcoming is serious enough to justify termination. It is also possible that the other party is authorised to order the products elsewhere. This, of course, also depends on what parties have set out about this in the agreement. 

Conclusion

In so far as can be ascertained, there is no court ruling yet on the question of whether the coronavirus can be considered force majeure. Should this come up in a particular case, the court will rule on it based on all specific circumstances of the case. This concerns both actual circumstances and legal agreements between the parties. 

In such a situation, it is therefore important to carefully review the contractual agreements and find out the exact cause of non-compliance with the agreements. 

For the future, it is important to include a clear definition of force majeure in agreements and/or general terms and conditions. It is also important to clearly formulate the consequences of force majeure to prevent discussion. This way, parties will know where they stand.

Authors

Guus-Lemmen-45-CMS-NL
Guus Lemmen
Advocaat
Utrecht
YHS_LennovanDonk-CMS-NL
Lenno van Donk
Advocaat
Utrecht