In light of the current situation due to the COVID-19 pandemic and the restrictions imposed by the Government Resolution declaring a quarantine in the territory of the Republic of Lithuania (the Government Resolution), we provide below the key aspects about COVID-19 as an event of force majeure.
What is force majeure?
- Force majeure is an event that may exempt from liability for non-performance of a contract.
- Force majeure is not in itself an event triggering termination of the contract or contractual obligations.
COVID-19 + Government Resolution = FM?
The restrictions imposed by the Government Resolution may be qualified as force majeure; however, the circumstances of each particular situation and the provisions of the contract concluded between the parties must be considered on a case-by-case basis:
- Where a prohibition established by the Government Resolution clearly restricts the business operations of an undertaking by preventing it from the fulfilment of its contractual obligations, such circumstances are likely to be deemed to be force majeure.
- For instance, a situation when due to closure of stores (other than stores selling food, veterinary goods, pharmacies and optician stores, and online stores) under the Government Resolution they are objectively deprived of income and are unable to meet their rent payment obligations to the landlord should be deemed to be force majeure.
- On the other hand, while analogous restrictions apply to catering establishments, there can be doubts as to the existence of an event of force majeure here, because there is one possibility for them to provide take-away food services or otherwise deliver food to consumers.
- A situation when the fulfilment of contractual obligations is rendered only more difficult but objectively is still possible may not be deemed to be an event of force majeure. However, such situation may be relied on as a ground to request modification of the performance of the contract due to a change in circumstances (e.g. change the amount of rent payable under the contract).
Duration of force majeure
- The quarantine period established by the Government Resolution runs from 16 March 2020, 00:00, until 30 March, 24:00.
- If the fulfilment of contractual obligations is not possible only during the quarantine period, force majeure will be considered to exist temporarily. A contractual party will be only temporarily released from the performance of the contract, and when the quarantine ends, performance of the contract will be resumed and continue as usual.
- If the fulfilment of the contract is objectively impossible after the expiration of the quarantine period (e.g. materials required for the performance of the contract were not delivered during the quarantine period), whether such situation may be treated as an event of force majeure depends on the factual circumstances of each particular situation, contractual provisions, and more.
Certificate from the Chamber of Commerce, Industry and Crafts
The Procedure for Issuance of Certificates Evidencing the Existence of Force Majeure was approved by Government Resolution No 222 of 13 March 1997 and Government Resolution No 766 of 29 July 2015. Although the issuance of such certificate does not in itself determine the fact whether an event of force majeure has occurred in the particular situation, such certificate may be significant for the following reasons:
- The parties may have differing opinions as to whether an event of force majeure has occurred or not.
- The certificate would provide conclusive evidence in court and increase the likelihood of recognising in the particular proceedings that force majeure exists.
We therefore recommend applying to the Chamber of Commerce, Industry and Crafts for a certificate evidencing the existence of force majeure.
The fact of existence of force majeure is not in itself sufficient for a party to be able to rely on an event of force majeure:
- A party willing to rely on the force majeure clause is required to immediately notify the other party in writing that it is unable to perform the contract due to an event of force majeure.
- If the party whose performance is affected by force majeure fails to notify the other party, it may be liable to compensate the other party for the resulting damages.
- Despite the fact that a party relies on force majeure, it is advisable to maintain active communication and cooperation with the other party and use reasonable efforts to perform the contract.
Material contractual terms
- Not only facts but also legal circumstances are relevant in each particular situation.
- A contract may contain special terms relating to force majeure. For instance, a contract may list specific events that do not constitute force majeure, provide detailed instructions for giving a notice of force majeure, etc.
- A contract may provide that it is governed by foreign law, or foreign law may be applicable to a contract under legislative acts, depending on the type of contract with a foreign entity. In this case, the fact whether the existing situation is deemed to be force majeure and the legal effects resulting from such situation would be determined in accordance with the applicable foreign law.
Other legal means to respond to unforeseen contract performance difficulties
- If due to a change in circumstances the performance of a contract becomes substantially more difficult for one of the parties, the party whose performance is affected may apply to the other party or a court, requesting to amend the contract in order to restore the balance of contractual relations or to terminate the contract.
Dr Rimantas Simaitis, Partner and Milda Markevičiūtė, Senior Associate at COBALT