With the recent outbreak and spread of COVID-19, businesses may experience several problems, such as absences of employees or disruptions in a supply chain required for their manufacturing or deliveries, which negatively impact their performance under a contract. In this alert we address the question whether negative consequences of COVID 19 could be under Slovak law considered as force majeure events, i.e. (in the Slovak legal terminology) the “circumstance excluding liability”.
Statutory Definition of Force MajeureIn general, in business relations, if a party breaches its contractual obligation, the breaching party is liable for damages caused to the other party due to the breach of the obligation. However, unless agreed otherwise, if a party in breach proves that the breach of obligations was due to “circumstances excluding liability”, the (breaching) party shall be released from its liability for damages. Provisions on circumstances excluding liability, i.e. force majeureevents, are regulated in the Commercial Code1.
The circumstances excluding liability are defined in the Commercial Code as obstacles, which:
- occur regardless of the liable party’s will; and at the same time
- prevent this party from fulfilling its obligation,
unless it can be reasonably anticipated that:
- the liable party could prevent or overcome the obstacle or its consequences; and
- the (breaching) party had anticipated the obstacle at the time when the obligation (contract) was agreed.
The obstacle, which occurs only during the time when the liable party was already in default with the fulfilment of its obligation, shall not be considered as the force majeure event.
Contractual FreedomParties to a contract may exclude the general application of the statutory definition of the force majeure event. They may also agree their own force majeure clauses. The contractual definition of a force majeure can be very general and applicable broadly to almost any default that is beyond control of the liable party, or it can be explicitly limited to very specific events that constitute a force majeure event (e.g. earthquakes, floods, strikes, or acts of terrorism). It is, therefore, necessary to review the terms of particular commercial contracts in order to determine whether the party shall be excluded from liability due to the occurrence of a particular unpredicted situation, such as the spread of COVID-19.
Is COVID-19 Force Majeure Event or Not?Having regard to the various nature and extent of several consequences of the spread of COVID-19, it is not possible to make a conclusion – that would be generally applicable to all situations – whether the spread of COVID-19 disease would be considered as a force majeure event under the Slovak law. In particular, in each particular case (in addition to other relevant circumstances) we would have to analyse, whether the current extraordinary situation indeed “prevents the contractual party to fulfil its obligation” under the respective contract, and whether, at the same time, “it cannot be reasonably anticipated that the liable party could prevent or overcome this obstacle or its consequences”. In our view, there may be cases where the unpredictable negative consequences of the spread of COVID-19, such as mandatory closing of a plant or operation by governmental decisions or obligatory quarantine of employees, could be considered as the circumstance excluding liability. The assessment would have to be made on a case by case basis, taking into consideration also the nature of the obligation that was violated, and the nature of the very particular consequences of COVID-19, which particularly prevent the party to fulfil its contractual obligation. Finally, only courts are entitled to decide, in each particular case, whether the liability of a party in breach is excluded due to COVID-19.
Last but not least, we note that pursuant to the Commercial Code even a valid force majeure event does not release the obliged (liable) party from its duty to pay a contractual penalty for the breach of its obligation if the contractual penalty was agreed in the respective contract for the particular breach of the respective obligation. In other words, while the (breaching) party may be released from its liability for damages (caused due to the breach of its obligation), the party would still have to pay the contractual penalty, unless otherwise agreed in the contract in this regard.
This legal information was prepared in March 2020 exclusively for the purpose of providing general information and should not be viewed as a legal advice. The aforementioned overview is not comprehensive, but only provides a brief summary of the relevant legislative changes. If you have any questions regarding this topic, please do not hesitate to contact us.
1* Act No. 513/1991 Coll., the Commercial Code, as amended.