FAQ: Coronavirus

27 March 2020

The rapid outbreak of the Covid-19 virus, commonly known as the coronavirus, in Belgium entails a series of drastic measures imposed by the Belgian authorities on the entire population and which have a direct impact on Belgian businesses and entrepreneurs with the result that the parties concerned cannot (or can no longer) fulfil their contractual obligations towards each other.

The key question that every entrepreneur poses today: 'Can the coronavirus be qualified as a case of 'force majeure' in order to be exempt from liability in the event of non-performance of the contract?'.

In this contribution, we hope to answer some of your pressing questions and take away (as much as possible) the prevailing uncertainty.

 

 

What is ‘force majeure’ under Belgian law?

Under Belgian contract law, a debtor is released from his contractual obligations if he can prove that the non-performance of his contractual obligations is the result of an external cause or force majeure (articles 1147 and 1148 of the Civil Code).

On this basis, it can therefore be established that two (2) cumulative conditions must be met before a debtor can invoke force majeure:

  1. the occurrence of an event/circumstance which makes the performance of the contractual obligations (temporarily or permanently) impossible, and
  2. the occurrence of the event must not be attributable to the party failing to fulfil its contractual obligations.

In other words, a debtor may invoke force majeure if he is (temporarily or permanently) unable to perform his obligation due to a change in circumstances beyond his control.

Moreover, in accordance with article 1148 of the Civil Code, the debtor is not obliged to pay any compensation for non-compliance with his contractual obligations in the event of force majeure. However, a distinction must be made between a temporary and a permanent impossibility to perform:

Temporary impossibility of performance

If the force majeure only leads to a temporary impossibility to perform a contractual obligation, the performance will be suspended for the duration of the force majeure.

As soon as the force majeure has disappeared, the debtor will have to resume his contractual obligation(s) (unless the other party would no longer need this performance).

Permanent impossibility of performance

However, if the force majeure results in a definitive impossibility to perform a contractual obligation, the debtor is (permanently) released from the performance of his contractual obligation(s).

In this case, the financial loss is borne by the creditor.

Notice: if a part of the contract can still be performed, the debtor is still obliged to perform this part.

With respect to the application of the Covid-19 virus, the majority of cases will lead to a temporary suspension of the agreement, unless the execution of the contractual obligations by the debtor would no longer be useful (for example, the expiry date of the products to be delivered has been exceeded).

 

 

The coronavirus prevents one and/or the other contracting party from fulfilling its contractual obligations, how to deal with this situation?

The first reflex is to examine the clauses of the contract of which te performance is compromised as well as the general conditions if they exist and in case they appply. Indeed, the answer to this question is not regulated by mandatory or public policy provisions, so that freedom of contract prevails.

Common hypotheses are :

  • the parties have expressly waived the possibility of invoking force majeure as a liberating cause. Only the debtor of the unfulfilled contractual obligation bears all the consequences of the non-fulfilment.
  • the parties have provided for the possibility of invoking force majeure, but have chosen, within the framework of their contractual relationship, to define what exactly falls under this notion by giving an exhaustive list of the circumstances covered: if the coronavirus (or, more generally, an epidemic/pandemic) does not fall under one of these circumstances, force majeure cannot be invoked. 
  • the contract provides for an obligation to renegotiate the terms of the contract in the event of a change of circumstances.
  • the parties have not provided for this in the contract, so that ordinary law applies.

 

If the contract does not exclude and does not limit the invocation of force majeure, can the coronavirus be considered as a case of force majeure?

A distinction should be made according to whether the epidemic removes an object or a cause from the contract (nullity), makes its execution impossible (force majeure) or simply more difficult (unforeseen circumstances).

 

The object of the contract disappears in the course of its execution

If the object of the contract disappears in the course of its execution, the parties may invoke the nullity which is a cause for a total or partial termination of the contract (unless otherwise stipulated in the contract).

In the hypothesis of a sales contract: if the property sold disappears, the theory of risk applies: in principle, the transfer of ownership and therefore of risk takes place as soon as the consents are exchanged, with the exception of the retention of title.

 

The cause of the contract disappears in the course of the performance

If the cause of the contract disappears in the course of performance, the parties may only exceptionally invoke its nullity as a cause for partial or total termination of the contract (unless the contract provides otherwise).

The cause is the decisive motive of the binding party (for example: I buy the shares of a company at such a price, given its profitability). The Court of Cassation states that the cause must exist at the time of the conclusion of the contract and that its disappearance during the performance of the contract (for example: the profitability of the company disappears due to an unforeseen event) does not, in principle, affect its validity. However, an exception is made in the case of gifts where the future performance of the contract is 'stripped of all meaning' (Cass., 6 March 2014).

 

The coronavirus makes it impossible for me to fullfil my obligations

If the coronavirus makes it impossible for me to fulfil my obligations, without withdrawal from the contract, force majeure may be invoked. The impossibility of performance shall be assessed in a reasonable and humane manner, taking into account the economics of the contract and the diligence expected of the parties. Whoever invokes it must be able to prove that he has done everything possible to avoid the impossibility of performance (Cass. 4 June 2015).

Impossibility can be material and practical, but also legal (e.g. extinguished by fire or government decisions). In addition, the relative impossibility is often applied. As indicated above, a party to the contract cannot be expected to make extra-human efforts to meet its contractual obligations.

 

 

If the conditions of force majeure are met, can I automatically assume that I am exempt from the performance of my contract?

In principle, force majeure leads to termination of the entire contract. The rights and obligations of the parties will disappear (for the future only) from the moment the event preventing performance occurs. The debtor who does not fulfil his contractual obligation(s) in case of force majeure is therefore not contractually liable for the contractual default resulting from this and is also not obliged to pay any substitute damages.

In practice, the parties are encouraged to renegotiate the terms of their contract.

Nuances :

  • A temporary impossibility does not render the obligation null and void, but only temporarily suspends its execution. The debtor must return to performance when the impediment has disappeared (unless the exceeding of a certain time limit renders the performance useless) (see above).
  • The debtor is not discharged if he has committed an error (e.g. he was already in default before the coronavirus occurred).
  • It must be verified on a case-by-case basis whether a contractual or legal provision does not otherwise affect the rights and obligations of the parties in such circumstances.
  • If part of the obligations of the agreement remains enforceable, the termination can only be partial.

As indicated above, for the application of the Covid-19 virus, the majority of cases will lead to a temporary suspension of the agreement, unless the execution of the contractual obligations by the debtor would no longer be useful (for example, the expiration date of the products to be delivered has been exceeded).

As regards federal public contracts, the government has already admitted the existence of a case of force majeure and, subject to proof that the delay or non-execution is due to Covid-19, the federal government will not impose fines or sanctions on service providers, companies or the self-employed.

 

 

What is the effect of the date of my contractual obligation on the assessment of force majeure?

In order to be able to invoke force majeure, it must be demonstrated that the circumstance rendering performance impossible was unforeseeable at the time the contract was signed.

In particular, in the case of the coronavirus, it is not likely to be difficult to demonstrate for all contracts concluded before 1 January 2020 that the circumstance was unforeseeable. More questionable is the unforeseeable or unforeseeable nature of commitments entered into after that date, since the epidemic and the risk posed by it were known at that time.

 

 

If my contractual partner invokes force majeure, but I have prepaid (in full or in part) the price that constitutes the consideration for his obligations?

In principle, your contractual partner is obliged to reimburse the full amount paid in advance to you, unless he has already started to perform certain services. In the latter case, the refund will be made in proportion to the obligations already carried out.

However, you must take into account the contractual provisions that provide otherwise.

In "B2B" relationships, the contractual freedom is complete: the parties are free to determine the conditions and consequences of the termination of their contract. A clause stipulating that a party is not entitled to recover a deposit, even in case of force majeure, is currently fully valid. On the other hand, this type of clause, which causes a clear imbalance between the rights and obligations of the contracting parties or which, without any quid pro quo, places the entire economic risk on one party, will be prohibited from December 1, 2020, in contracts concluded, renewed or amended.

 

 

What happens if the coronavirus just makes the execution of the contract more difficult, but not impossible?

It should be checked whether the contract or the general terms and conditions provide for a 'hardship' clause. Such a clause usually applies in a case where there is an unreasonable balance in the respective contractual obligations of the parties, without fault, due to abnormal or exceptional circumstances (in this case, the coronavirus).

If no such clause is provided for in the contract or the general terms and conditions, a party cannot generally invoke Belgian law, which is the 'theory of hardship', and the contract remains fully applicable (without a party being able to abuse its rights).

In the future, however, it will be possible to rely on the theory of hardship in the absence of a hardship clause in the contract or general terms and conditions, since the new Civil Code will legally enshrine this theory.  

 

 

The epidemic has made it difficult, but not impossible for my co-contractor to fulfil his obligations. The contract does not contain an emergency clause. Can I therefore demand that he fulfils his obligations in full?

Even if the contract does not contain an emergency clause, the fact that the other party is obliged to fulfil its obligations when an unforeseen event disrupts the economy of the contract (or refuses to comply with its request for renegotiation or amicable termination of the contract) may constitute an abuse of rights.

 

 

I have to deal with the financial consequences of the health crisis, can I suspend the payment of my rent under a commercial lease?

An event or circumstance that does not make it impossible for the debtor to fulfil the obligation, but only more difficult or costly, does not therefore constitute force majeure which, in principle, does not allow the invocation of force majeure in order to not pay the rent to the lessor.

In this case, the decision of the Belgian authorities to close the non-essential shops does not constitute an event or circumstance that makes the tenant's commitment, i.e. the payment of the rent, impossible. In addition, the compulsory closure of the shop is not imputable to the landlord and the landlord is still fulfilling his obligations, i.e. making a property available that the tenant enjoys. Furthermore, the current situation created by the coronavirus falls under the entrepreneurial risk, the consequences of which should not be borne by the lessor.

If the agreement in question also does not provide for a specific clause on the suspension of payment of the rent in the event of force majeure, the tenant is in principle contractually bound to continue to pay the rent. If the non-payment of the rent by the tenant to the lessor would continue for too long, this can also be qualified as a serious contractual breach of contract entitling the lessor to terminate the agreement at the expense of the tenant (resulting in damages and related costs).

The situation would, of course, be different if the Belgian government were to decide to suspend the rent in response to the economic consequences of the current crisis (similar to the measures taken by the French Government for certain companies). However, to date, the Belgian government has not announced any such measures to remedy the precarious situation in which tenants and landlords find themselves as a result of the Covid-19 virus and the measures taken by the Belgian government thereon. However, we do expect measures from the government in this respect. 

In any case, it is advisable, where possible, to negotiate terms and deadlines with the landlord. In view of the exceptional circumstances, it may also be more attractive for the landlord to temporarily receive less rental income, for example, as an alternative to not receiving all rental income in the short or long term. In the most extreme case, and depending on the circumstances, a joint decision could also be made to terminate the agreement by mutual consent.

 

 

Contact

More questions on this topic? Contact our corporate legal specialists: