Suspension of contractual obligations as a result of the coronacrisis

23 maart 2020 | Door:  Joost Blom

As is the case for nearly all countries in the world, the Netherlands faces a crisis that is the result of measures put into place to contain the coronavirus. Many companies closed their doors or are working at a much lower capacity. In the Netherlands, too, the government announced extensive measures to ensure that the coronavirus can be contained. The result will be that many contractual obligations cannot be met in time. What are the legal consequences?

Consequences

Many companies work at half strength or even closed entirely. In the Netherlands, the restaurant industry and horticulture industry were hit hard by the crisis. By order of the government, the restaurant industry is forced to close entirely during the coming weeks and the horticulture industry experiences a drastic decrease in turnover (especially in export). The result is the impending destruction of many flowers and plants. For both industries this is a dramatic loss of turnover.

However, other businesses are also hit hard by this crisis. Consumer spending has decreased considerably, even though stores in the Netherlands are not forced to close doors. It might only be a matter of time, but many stores have already voluntarily closed their doors temporarily.

Manufacturers are also facing the crisis; not only due to the lower spending pattern of the final buyers, but also because suppliers cannot provide everything they are contractually obligated to provide.

This means that many companies cannot meet their payment obligations (in time). The question remains what the legal consequences of this are.

Force majeure

In Dutch law, there is the principle of 'force majeure'. In short, force majeure applies if you cannot meet your contractual obligations through no fault of your own. It must concern a situation you have no control over and that should also not be at your cost. For example, because something is a standard entrepreneurial risk. Consider a situation where a restaurant suddenly has fewer customers. This is a 'standard' entrepreneurial risk and cannot qualify as force majeure.

This leads to the question of whether or not the corona crisis qualifies as force majeure. Unfortunately, we cannot provide a clear answer as of yet. After all, the world is in a unique situation and the big question is who faces the costs of the consequences of this crisis.

Normally a liquidity shortage (which most entrepreneurs are now facing in the short term) is not accepted for a force majeure situation. It is considered a standard entrepreneurial risk. The chances are that a court will not accept an appeal to force majeure, even if the WHO has declared a pandemic. This uncertainty (a court decision) means that we need to look into other options.

Unforeseen circumstances

Another option for an entrepreneur is to appeal unforeseen circumstances and to ask for a (temporary) change or even termination of a contract on those grounds. There must be such an unforeseen circumstance that a continuation of the contract is unreasonable. It is definitely conceivable in specific situations for which an appeal for force majeure is not accepted, that an appeal for unforeseen circumstances is accepted. However, it will depend strongly on the type of contract and the situation whether an appeal will be successful.  Naturally, the contracting party can agree to the appeal for force majeure. In such a case, it is important to record the agreement.

Leniency

Because all entrepreneurs are facing a problem, especially a liquidity shortage, parties everywhere are asking for leniency with your contracting parties. We are all facing this crisis and will need to find a solution together. In such a case, it is not helpful to enforce each other's contractual obligations at all cost. If you are having problems meeting your obligations, or if you have buyers who do not meet their obligations, then deliberate with each other in a timely manner and look for a situation that does justice to this special situation we are all facing and that takes the interests of all parties into account.