Impact of Coronavirus and Force Majeure Rules Under the Laws of North Macedonia on Existing and Future Commercial Contracts
Published: April, 2020
Submission: April, 2020
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In order to cope with the public health crisis caused by the COVID-19 pandemic, the Government of North Macedonia has instituted a number of administrative measures aimed at preventing the spread of this virus, but also at dealing with the economic consequences of the crisis. Such measures include: restricting the operations of businesses in vulnerable industries, closing down all of the border crossings and airports, restricting the movement of people on the entire territory of the country, etc. (jointly: the “Administrative Measures”). The Government had imposed these restrictions initially by exercising its authorizations under the Law on Protection of the Population from Infectious Diseases, and after a state of national emergency was declared on 18 March 2020, by adopting special decrees having the legal force of laws.
The Administrative Measures are clearly capable of affecting the operations of businesses and of the ability to perform their obligations under existing commercial contracts, concluded prior to these measures being instituted. Yet, to what extent would the restrictions instituted by these measures be treated as a force majeure event under the laws of North Macedonia, must be considered on a case-by-case basis, with assessment of the exact terms and conditions of such contracts.
In the local practice, commercial contracts governed by local law have traditionally been short documents, where the parties agreed only on the main issues and refer to the provisions of applicable laws (namely, the Law on Obligations) to apply on the general legal issues. Where such contracts do not contain force majeure clauses, the provisions of Article 126 of the Law on Obligations named “Impossibility of Performance for which No Party is Liable” which codifies the concept of force majeure under local law, will apply. This Article reads as follows:
A party invoking force majeure must show not only that a specific Administrative Measure corresponds to the elements of the definition embedded in paragraph (1) of this Article, but also that, as a result of such Administrative Measure, it is completely or partially, temporarily or permanently, objectively or subjectively, impossible for such party to perform its specific obligations under the contract.
An objective, permanent and complete impossibility for performance due to a force majeure event will lead to the termination of the contractual obligation. However, there are instances where even a temporary impossibility of performance may lead to termination, for example, if the contract provides for fixed deadlines. In such cases, if the party invoking force majeure may seek restitution of that which it had given or done in order to fully or partially perform its obligation under the contract.
In most cases, however, an Administrative Measure will likely lead to a partial and temporary impossibility for performance, which would entitle to party not affected by the Administrative Measure either to terminate the contract if the partial performance does not meet its needs, or seek proportionate reduction of its own obligations under the contract, i.e. to seek proportionate reduction of the scope of the contract.
The affected party should notify the other party of the occurrence of a force majeure event and the impossibility of the performance of its obligations, and provide relevant evidence of such circumstances, including of any steps the affected party has taken to avoid or mitigate the event and/or its consequences.
Under the Law on Obligations, the party that successfully invokes force majeure will not be liable for any damages sustained by the other party due to the former’s non-performance. This derives from Article 252 of the Law on Obligations which provides that a debtor shall not be liable for damage if it can prove that it could not perform its obligation or that it is late with the performance of its obligation due to an extraordinary event that occurred after entering into the contract, which it could not prevent, avoid or eliminate (force majeure). However, this does not apply if the affected party was already late with the performance of its obligations when the force majeure event occurred, unless it proves that its contractual performance would have been lost even if delivered in time.
It is also important to consider that existing commercial contracts may already contain force majeure clauses and contain their own definitions of force majeure events (for example, by giving an exhaustive or a non-exhaustive lists of such events) and stipulate what the particular consequences of the occurrence of such events within the context of the particular contract (for example, specific notification requirements, specific duties to mitigate consequences, right to termination only if the event lasts for more than a specified time period, suspension of obligations for the duration of the event, right to renegotiate terms etc.). Macedonian courts would give effect to such clauses, respecting the parties’ intention and their freedom of contracting, unless the clauses are contrary to imperative rules of local law. For this reason, such clauses must be carefully interpreted in the context of the entire contract as well as in the context of the particular force majeure event that is being invoked, in order to determine the full scope of their application and effect.
Businesses should, therefore, take steps to correctly assess their legal position under their existing contracts, primarily by ascertaining whether they include specific force majeure clauses, but should also communicate and coordinate with their suppliers and customers to determine what their expectations are and to ensure the continuity of their own operations. Business should also assess what risks are involved with any future contracts that are yet to be concluded, as a result of the present pandemic or any future event of a similar effect.
Businesses must take note that one important element of the statutory definition of a force majeure event is that it is an event that could not have been foreseen at the time the contract is concluded. At present, it may be difficult to predict the scale, duration and effect of the coronavirus pandemic in the country and globally and in any particular sector or industry, just as it is difficult to predict what new administrative measures may the instituted by the Government as a response to the pandemic. Nevertheless, if businesses assess that there is a real risk for a particular commercial contract to be concluded could not be fully performed as a result of any such developments, they should consider including a force majeure clause that would take into account the possible disruptions in the economy and possible administrative measures, and regulate what rights would the parties have if they occur. Such contracts may also include clauses that regulate a situation where the performance of the contract is rendered commercially unreasonable and not just impossible to perform, if such developments are expected to only have an indirect effect on the contract.
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