Covid-19 and Contracts

Covid-19 as force majeure in the case of current contracts (contracting, rent, public contracts, ...)

General principles

In general, Belgian contract law is governed by the legal principle “pacta sunt servanda” ('agreements must be kept'). The contracting parties are obliged to comply with their contractual obligations. If a contracting party fails to comply with its contractual obligations, it commits a breach of contract and is contractually liable.

Today, it is often not possible or very difficult for many contracting parties to comply with all their contractual obligations due to the measures taken to combat the coronavirus. Questions arise whether a contracting party can be released from its contractual obligations sooner or later as well as what the consequences will be.

Most legal systems provide answers to these questions with the doctrine of force majeure. A contracting party will be able to release itself from its contractual obligations if it can prove that it is no longer possible to comply with its contractual obligations due to a case of force majeure. The exact interpretation of this doctrine, including the conditions or the consequences of force majeure, may vary from country to country. Therefore, a contracting party will initially have to determine the national law applicable to its contractual relationship.

In Belgian contract law, the principle of force majeure is enshrined in Articles 1147 and 1148 of the Civil Code. According to these provisions, a debtor will be liable for damages if he fails to comply with his contractual obligations or fails to do so on time, unless he can prove that this failure is the result of force majeure.

Conditions of force majeure and imprevision

Force majeure is not defined by law. Belgian case law and legal doctrine apply the theory of "non-attributable impossibility of performance". Force majeure will exist when two conditions are met:

1.           The invoked event makes the compliance with the obligations absolutely impossible; and

2.           The invoked event may not be attributable to the debtor. This also presupposes that the debtor could not reasonably have foreseen and prevented the invoked event at the time of the conclusion of the contract.

The Court of Cassation assesses the first condition strictly. An invoked event that only makes the compliance with the obligation difficult or more expensive is not traditionally considered as force majeure.

The possibility of invoking force majeure in Belgium is therefore subject to very strict conditions. The condition of "impossibility of performance" is particularly strict. More recent case law applies this condition less strictly. This case law also accepts force majeure when it has become "reasonably" impossible for a contracting party to comply with its obligations. This more lenient interpretation is also supported by certain legal doctrine.

Part of the legal doctrine pleads for alternatives to force majeure. Such an alternative is the theory of imprevision. According to the theory of imprevision, the obligations of a contracting party under the agreement can be revised if there are circumstances that are reasonably unforeseeable at the time of the conclusion of the contract and which make it considerably more difficult to comply with the obligations. The theory of imprevison therefore does not require that it is absolutely impossible for the debtor to comply with its obligations. Up to now, the Court of Cassation has always rejected the application of this doctrine. The case law of the Court of Cassation seems to leave the way open for the doctrine of abuse of rights in such cases: a creditor does not have the right to request the performance of an obligation when the exercise of this right manifestly goes beyond the limits of how a normal and diligent person would exercise it. Depending on the circumstances, it may be considered that a creditor who continues to request the performance of a contract, while the performance has become considerably heavier than foreseen, is liable for abuse of rights. There are few known examples in case law where the court has applied the doctrine of abuse of rights in such circumstances.

Consequences of force majeure

If the debtor can prove that there is a case of force majeure, he is no longer obliged to comply with his contractual obligations. Consequently, the debtor cannot be held liable for the damage caused by the non-performance of the contract. If the case of force majeure is of a temporary nature, the debtor will only be released temporarily. As soon as performance becomes possible again, the debtor must comply with his obligations again, unless the performance of the contract loses all usefulness as a result of the postponement. If the situation of force majeure makes it permanently impossible to perform the contract, the debtor is definitively released.

Which contracting party bears the economic consequences of the non-performance is regulated by the "risk theory" and depends on the nature of the contract.

In the case of a unilateral agreement (i.e. an agreement in which only one contracting party enters into an obligation, e.g. a donation), the debtor is no longer required to perform. Since the creditor can no longer request performance of the obligation, the creditor bears the economic risk of the loss. An important exception is where the creditor has already served the debtor a notice of default  for non-performance. In that case, the debtor remains liable.

This is different in case of a reciprocal agreement (i.e. an agreement by which the two contracting parties enter into commitments, e.g. contracting, purchase, lease, etc.). The debtor whose obligation becomes impossible due to force majeure shall be released from his contractual obligation. However, the creditor will in turn also be released from his counter-obligations. Legal doctrine states that the economic risk ultimately lies with the debtor of the obligation affected by force majeure. An important exception to this principle concerns the agreements that are the subject of the transfer of ownership of a particular object. Unless otherwise stipulated in the contract, ownership is transferred at the time the contract is concluded. If the object is destroyed by force majeure prior to delivery, the acquirer of the object will still be obliged to provide the consideration. Since the purchaser has already become the owner, he bears the risk. The important exception of the prior notice of default applies here as well. If the purchaser had already served the supplier notice of default to deliver the item, the supplier will have to vouch for the loss of the item.

In the event of force majeure, the contracting parties are in principle released from their contractual obligations for the future. The consequences for the obligations performed prior to the occurrence of the force majeure situation are less clear. Many authoritative authors on the subject of force majeure remain remarkably silent on this subject. However, some legal doctrine states that the contracting parties must return the remuneration they have already received for an obligation made impossible by force majeure (i.e. the remuneration for the future performance of the contract) on the basis of the general legal principle of "enrichment without cause". This legal doctrine is followed in the lower courts.

Deviations in the agreement are possible

The above principles are of supplementary law. Contracting parties may deviate from these principles by agreement. For example, contracting parties can determine which situations are considered as force majeure or what the consequences of this will be for the further implementation of the agreement.

Application in general

Applying these principles is a complex exercise that requires a thorough investigation of the facts.

In the first instance, a contracting party will have to ascertain which national law governs its contract. When foreign law is applicable, the question of force majeure and its consequences may be assessed differently than in Belgium. For example, many of the legal systems surrounding us do provide for the application of the theory of imprevision.

Secondly, it must be determined on the basis of the precise circumstances whether the conditions of force majeure are met. As discussed, it will always be necessary to verify in concreto whether the measures taken to combat the corona virus were unforeseen at the time of the conclusion of the contract and make it impossible to comply with the contractual obligations. To this end, a factual analysis is indispensable.

Thirdly, the consequences of force majeure must be assessed. In the first place, the relationship between the contracting parties themselves must be considered. Will the contractual obligations be suspended due to force majeure (temporary force majeure) or will the agreement be dissolved (permanent force majeure)? What about services already received? The possible impact with regard to third parties must also be taken into account. If a contracting party cannot comply with its obligations, can the other contracting party still comply with all its obligations towards other persons? Mapping out the consequences of force majeure on all consecutive links in a chain of contracts is by no means an easy exercise.

Finally, a contractual analysis will also be required. Many agreements deviate from the general principles of force majeure. In that case, it will have to be determined on the basis of the contractual provisions whether the coronavirus and the measures taken can be qualified as force majeure and what the consequences are.

Some applications

Contracting agreements for works

The construction sector has also been hit hard by the corona problem. Many construction works at sites are currently halted due to the government measures to combat the virus. As a result, many contractors will find it difficult to deliver their works on time and will wonder whether they can be released from this obligation.

Whether contractors can invoke government measures to invoke force majeure must be assessed on a case-by-case basis. A number of general guidelines are given below.

In the first place this will depend on the sector in which the contractor is active or on the nature of the works. In the "Ministerial Decree of 23 March 2020 on urgent measures to limit the spread of the coronavirus COVID-19", the government makes a distinction between the essential and non-essential sectors and services. Essential sectors and services are, for example, the energy sector, the chemical industry, services and companies for the management of polluted land ... For a complete overview, we refer to the annex to the Ministerial Decree. Importantly, since 3 April 2020, the decree foresees that all "producers, suppliers, contractors and subcontractors of goods, works and services essential for the execution of the activity of these (i.e. essential) companies and these services" are also included in these essential sectors and services. In addition, the decree provides that the other activities of the private construction sector are essential in the case of “urgent works and interventions”. Companies belonging to the non-essential sectors are obliged to apply the "social distancing" rule. Companies that are unable to do so are obliged to close down. Companies belonging to the essential sectors must, as far as possible, apply the social distancing rule. These companies are not obliged to close down when the application of this rule is impossible.

Contractors belonging to the essential sectors will, in principle, not be able to rely on government measures against corona to release themselves from their contractual obligations. Contractors belonging to non-essential sectors will only be able to invoke the government measures against corona to release them from their contractual obligations if the contractor proves that it is effectively impossible to comply with the obligations.

Secondly, this will depend on the nature and modalities of the obligation. For example, a contractor who does not belong to an essential sector, who has a results-based obligation to deliver on time, whose delivery date falls within the period of the corona measures, and who cannot possibly comply with the "social distancing" rule with regard to the works he has yet to carry out, may be able to release himself from his obligation to deliver on time. In that case, the client will not be able to charge fines for late delivery or claim damages. However, if the delivery date falls after the period of the corona measures, the situation will be less clear-cut. It is to be expected that a contractor who has been interrupted by the measures for two months will not be able to make up for lost time in one day, one week or a few weeks if the contractual delivery period falls one day, one week or a few weeks after the end of the coronation measures. It will require a factual assessment by the court as to whether a contractor, who has made every effort to make up for lost time with additional means of production, was able or was absolutely unable to deliver on time. However, a contractor cannot increase his efficiency indefinitely by infinitely increasing his production capacity. A site with too many means of production loses yield.

It is to be expected that it will be fiercely contested whether the fulfilment of the obligation to deliver on time will become absolutely or definitively impossible.

Furthermore, contractors may be faced with scarcity of raw materials or suppliers who are unable to deliver. These circumstances may also qualify as force majeure if the conditions are met. For the application of force majeure to supplier agreements we refer to the title below.

Public procurement contracts of works

The situation is different with regard to the performance of public procurement contracts. Contrary to the common law of contract law, public procurement legislation does provide for the application of the theory of imprevision. Both the Royal Decree of 26 September 1996 on the General Contracting Conditions for public procurement contracts for the undertaking of works, supplies and services and for concessions of public works (hereinafter the "AAV") and the Royal Decree of 14 January 2013 establishing the general implementing measures of the public procurement contracts and the concessions of public works as amended by the Royal Decree of 22 June 2017 (hereinafter the "AUR") provide for the possibility for the contractor to obtain a term extension or revision of the contract under the following conditions:

- the Contractor must suffer a very significant disadvantage (this condition does not apply for a term extension);

- due to circumstances which he could not reasonably have foreseen when submitting his tender or concluding the contract; and

- which he couldn't remedy even though he did everything he could.

The public procurement legislation therefore provides for an adjustment of the contract if it is aggravated by circumstances beyond the control of the parties.

Whether the government's current measures meet the conditions for obtaining a term extension or revision of the contract is a matter of fact, of which the burden of proof lies with the contractor. The court will ultimately have the final say in this matter. However, at the Council of Ministers meeting on 6 March 2020, the federal government decided that it will adopt a flexible attitude with regard to federal public procurement contracts. The federal state will not impose fines or sanctions for the non-execution or delay of federal public procurement contracts for which the contractor demonstrates that the delay or non-execution is due to the corona virus. However, this measure seems to add little to the regulation on unforeseeable circumstances provided for in the public procurement legislation. The contractor still has to prove that the delay or non-execution is due to the corona virus.

In a circular of 10 April 2020, the Flemish Government also published guidelines on how contracting authorities should deal with the impact of the corona measures on public procurement. The Flemish Government as well asks not to apply penalties or fines to contracts that are delayed as a result of covid 19. In addition, the Flemish Government asks to make maximum use to be made of “deducted payments”. This means that works which are delivered and accepted can already be invoiced and paid for. Public contracts that only foresee in a single payment after all works have been completed should be amended. In addition, the Flemish Government asks the contracting authorities to make use of advance payments where possible. The Flemish Government, however, repeats that contractors have an obligation to limit damages and that most contractors will not be prohibited from continuing their projects.

If a contractor wishes to claim an extension of the term or an amendment of the agreement, he must inform the client in good time of the circumstances on which he relies. The AAV and AUR provide that, under penalty of forfeiture, the contractor is obliged to inform the client in writing of the circumstances on which he relies and to explain briefly the influence of those circumstances on the further progress and cost price of the assignment. In any event, the contractor must notify the facts and circumstances he wishes to invoke in writing within 30 days after the circumstances have arisen or after the date on which the contractor should have been aware of these circumstances. Requests based on facts and circumstances reported after the 30-day period are inadmissible.

Contractors expecting to find serious nuisance in the performance of their assignments as a result of the government measures against the coronavirus, are therefore advised to report this as soon as possible to their client and to indicate what the impact will be on the course of the assignment.

Force majeure and supplier agreements

The measures taken against the corona virus and the reactions to it can have serious consequences for the "supply chain" of different sectors. Producers, suppliers and end-users may face scarcity in the market or suppliers struggling to comply with their obligations.

It will not always be easy for suppliers to invoke force majeure. Belgian law generally adheres to the principle "genera non pereunt" ("fungible goods do not perish"). Fungible goods are goods that are in principle always in stock and replaceable. The consequence of this principle is that force majeure is almost never accepted when the contractual obligation consists of the delivery of fungible goods. A supplier can in principle always obtain supplies elsewhere or obtain the goods at a higher price. The fact that it only becomes more difficult and/or more expensive for the supplier to comply with his obligations is insufficient under Belgian law to invoke force majeure.

If a supplier wishes to invoke force majeure, he will have to demonstrate that it is actually impossible to comply with his obligation and that no alternatives are available. Examples could be that all available stocks of a raw material have been exhausted worldwide or that certain measures make transport impossible. It is also important to note that non-compliance with this obligation was not foreseeable when the contract was concluded and cannot be attributed to the supplier.

Force majeure and rent

As a result of government measures to combat the coronavirus, many traders are obliged to close their business. As a result of the closure, many traders lose their main source of income, while their landlords generally expect them to continue to pay their commercial lease. The question is whether force majeure can be invoked here in order to be (temporarily) released from the payment obligation.  There is a lot of discussion on this subject within legal doctrine.

There is unanimity that the loss of income of the tenant does not constitute force majeure. The obligation to pay a sum of money is hardly ever impossible. Traders will therefore not be able to invoke loss of income to justify a suspension of the payment of the rent. The tenant's obligation to pay the rent will therefore not be affected by force majeure.

The question arises whether the landlord's commitment to provide quiet rental enjoyment is impossible due to the corona measures. Two rules conflict here. Article 1722 of the Civil Code stipulates that the lease is terminated by operation of law if the property is destroyed by chance (i.e. force majeure). If the rented property is partially destroyed, the tenant may, depending on the circumstances, claim the annulment or reduction of the rent. This article is an interpretation of the general doctrine of force majeure. When the rented property is destroyed, the landlord is released from his obligation to provide the tenant with the enjoyment of the property. However, the tenant will in turn be released from his payment obligation.

The question arises whether the compulsory closure of the business qualifies as "destruction" of the rented property. Case law has already ruled on several occasions that the "legal" destruction of the property can also be considered as destruction within the meaning of article 1722 of the Civil Code. Moreover, the Court of Cassation has already ruled that the question whether there is a destruction within the meaning of article 1722 of the Civil Code must be assessed in the light of the possibility of still realising the agreed destination. Examples of these principles can be found in case law. For example, in an old judgment of 9 January 1919, the Court of Cassation ruled that, on the basis of article 1722 of the Civil Code, the tenant of a car park was justified in not paying part of her rent because a traffic prohibition made it impossible to use this car park in accordance with its intended use.

It could therefore be concluded that the compulsory closure of the business has made it impossible to realise the agreed use of the property and that, as a result, the rented property has been 'legally' destroyed. 

Whether the legal destruction of the property will be accepted will depend on the facts. One has to look amongst other things at the exact destination of the property and whether the enjoyment of the property in accordance with this destination has actually become impossible as a result of the imposed closure. If the tenant still uses or can use the property (partly), for example as storage space, the landlord may dispute that the tenant no longer has the enjoyment of the property. In that case, the tenant could possibly invoke the partial destruction of the property in order not to pay part of the rent. If there is only temporary destruction, the tenant will also only be able to retain part of the rent temporarily.

Some authors are of the opinion that these principles of article 1722 of the Civil Code conflict with article 1725 of the Civil Code. Article 1725 of the Civil Code does not oblige the landlord to hold the tenant harmless against actual disturbances by third parties. For example, the landlord is not liable for the inconvenience caused to the tenant by road works because these constitute a disorder of third parties. According to these authors, the landlord should also not be responsible for the government measures imposed to combat the coronavirus. We are of the opinion that this article does not play a role here because there is no “indemnification”, i.e. being responsible for the harmful consequences of a disorder by the government. Indeed, the tenant does not ask the landlord to compensate him for the adverse consequences he suffers as a result of the closure of his business.

It is clear that this debate will have to be settled by case law and possibly by the case law of the Court of Cassation.If you have any questions about this, please contact us: Katleen Tobback (katleen.tobback@curia.be).