The impact of epidemic on contractual obligations

25 March, 2020

The obligation to fulfil contractual obligations is one of the cornerstones of civil law. Given the current state of affairs and developments in recent weeks, both the spread of the virus and the measures that were adopted to prevent the spread are expected to have a significant impact on the fulfilment of contractual obligations.

The best solution in such cases is to reach a mutual agreement between the parties, however as we are aware that a consensual resolution and settlement of relationships is not always possible, we have set out some general rules of contractual obligations that may be relevant in the current situation.

»FORCE MAJEURE«

In certain cases, the debtor may be free from liability for damage if he proves that he was unable to fulfil his obligation or that he failed to fulfil his obligations due to circumstances arising after the conclusion of the contract, which he could not prevented, eliminated or avoided ("force majeure"). The spread of COVID-19 could potentially be considered as such circumstance. In assessing individual cases, it will be necessary to rely primarily on the contractual provisions (whether the contract regulates the force majeure situation) and on the temporal aspect (whether the situation occurred before or after the declaration of a pandemic or epidemic).

CHANGE IN CIRCUMSTANCES (Article 112 of Obligations Code)

In case the circumstances, which significantly complicate fulfilment of party’s obligations, arise after the contract was concluded, the respective party has an option to request rescission of the contract (through court). The fulfilment of certain obligation must be made difficult to such an extent that the contract manifestly no longer meets the expectations of the contracting parties and and it would therefore be unfair to maintain it as it is. As with force majeure, time aspect should be deemed important.

INABILITY TO FULFIL OBLIGATIONS (Article 116 of Obligations Code)

Taking into account some of the rigorous measures to prevent the spread of COVID-19 virus, such as closing borders, closing down bars and restaurants, banning direct sales to consumers, the current state of affairs may lead to situations where the fulfillment of a contractual obligation by one or both of the parties will become effectively impracticable. For the cases where so called "inability to fulfill" occurs, the Slovenian Obligations Code provides that the other party should be resolved of its obligation as well.

UNCERTANTY OF THE POSIBILITY TO FULFIL OBLIGATIONS (Article 102 of Obligations Code)

Currently there are also a lot of cases where the clients are questioning whether they are obliged to fulfill their obligations, if they know or seriously doubt that the counterparty will be able to fulfill its part of the obligation. In such events, the Obligations Code gives the right to the party in doubt to defer fulfilment of its part of obligation until the affected party has fulfilled its obligation or provided adequate insurance.

The respective document is only a brief introduction of potentially relevant legal institutes, that are listed as exceptions to the general principles and are thus applicable only in a limited number of cases. Before referring to them, it is therefore advisable to verify, with the assistance of a qualified and experienced legal counsel, whether the circumstances of the particular case justify their use.

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