The Covid-19 virus or Corona virus is spreading through Europe and the world with intensified speed, impacting all parts of society. Society is a structure delicately woven together by countless contractual relationships that form the framework of interaction between people, businesses and the public sector. If the corona virus impedes businesses’ possibilities to fulfil their contractual obligations, can force majeure be invoked?
Force Majeure Clause
Commercial agreements typically include a force majeure clause intended to temporarily free a party from the duty to fulfil its contractual obligations due to a sudden change in circumstances which a party could not and should not have foreseen when entering into the agreement. Often force majeure clauses include a list of examples of such circumstances (strike, fire, flood, earthquake, acts of terrorism etc.) preceded or followed by a sweeper (without limitation/and any similar circumstances).
If an agreement includes a force majeure clause, the assessment of whether or not the clause can be invoked due to the impact of the Corona virus must be made case by case. The assessment depends on a number of factors, such as the exact language of the clause, how long the inability to fulfill the agreement lasts, what the exact effects are, what the possibilities to reasonably mitigate the impact are etc. In general, the fact that providing a service or a product becomes difficult or expensive is not sufficient for invoking a force majeure clause under Finnish law (unless the language of the clause specifically states otherwise). The impact of the Corona virus must be such, that providing the service or product is impossible or so excessively difficult that it would be unreasonable for a party to fulfil its contractual obligations.
It should be noted that if the force majeure clause lacks sweeper language in regard to the list of example force majeure events, the example list may be deemed exhaustive. In such case, it is possible that the Corona virus would no entitle a party to invoke a force majeure clause if disease epidemics and/or pandemics are not specifically mentioned in the list of examples.
Absence of Force Majeure Clause
If the agreement does not include a force majeure clause it does not automatically mean that a party would be without legal options. The Finnish Commercial Code recognizes force majeure as means for a party to free itself from liability if it cannot temporarily fulfil its obligations due to a sudden unforeseeable event. In addition, the United Nations Convention on Contracts for the International Sale of Goods (CISG), which governs agreements for the sale of commercial goods between parties in different countries, may under Article 79 excuse nonperformance that results from an unforeseeable impediment beyond a party’s control that it could not have overcome.
Both the Finnish Commercial Code and CISG are discretionary and many times specifically excluded in agreements. Consequently, the application of the Finnish commercial code’s force majeure provisions or CISG Article 79 require that the parties have not expressly waived their applicability. However, even if the parties would have waived the applicability of the Finnish Commercial Code and CISG, Finnish law may still offer a branch for a party to clutch to stay above water. Namely, under Finnish contract law a party may claim that enforcement of an agreement (or a specific part thereof) would lead to an unreasonable result and that the agreement, therefore, must be adjusted. In determining the possibility for adjustment the court shall consider the agreement as a whole, the balance between the parties, the circumstances at the time of entering into the agreement, the circumstances thereafter and other matters of relevance. Even if the threshold for adjusting an agreement between businesses is quite high, a completely unforeseeable event like the Corona virus could constitute grounds for adjustment, provided that the direct impact is severe enough and that the affected party has taken all actions reasonably available to mitigate the impact.
We at Waselius & Wist hope that all our clients are in good health and that the impact of the Corona virus on your businesses and lives is as limited as possible. However, should this unfortunate situation lead to circumstances where you need legal assistance, we are at your disposal.
Christoffer Waselius
Partner