Contracts at the time of the Corona crisis (FAQ)
Date: April 06, 2020
Modified November 14, 2023
Written by: Valerie Lipman
Reading time: +/- 2 minutes
Date: April 06, 2020
Modified November 14, 2023
Written by: Valerie Lipman
Reading time: +/- 2 minutes
The Corona crisis has major implications for many business owners . Among other things, this leads to various questions in the area of (the performance of) contracts. Below I answer some frequently asked questions on this topic. Would you like to know more? In this infographic we offer you insight into the points of attention to determine your position.
The current situation due to the Corona virus makes many companies try to cut costs. This may, for example, be a reason for canceling a placed order. However, the main rule is that agreements made must be kept. So a placed order cannot be cancelled just like that. However, it may be the case that in the agreement concluded between the parties or applicable general conditions, a provision is included on the basis of which an order can be canceled. Think of a cancellation or modification clause.
If the contract does not allow for cancellation of an order, it may still be possible to cancel by invoking unforeseen circumstances (Article 6:258 BW). Pursuant to this article, a contracting party can claim in court that the contract be amended or dissolved in whole or in part if there are unforeseen circumstances. It must be a circumstance that the parties did not take into account in the contract. Obviously, most companies did not take into account the exceptional situation that has now arisen as a result of the Corona virus. For a successful claim for modification or dissolution of the contract, the unforeseen circumstances must result in the other party not being able to expect unchanged maintenance of the contract. Whether the current Corona crisis constitutes such an unforeseen circumstance will have to be assessed on a situation-by-situation basis. If that is the case, it is advisable that the parties themselves enter into consultations about a possible adjustment of the agreement, in which the risks of the Corona crisis are divided between the parties. Incidentally, a certain risk allocation may result from the agreement, so it is good to check the agreement in this regard as well. In addition, compensation measures taken by the government can be taken into account.
A contract entered into for an indefinite period of time (a long-term contract) can, in principle, be terminated. However, it will have to be examined whether the contract contains a provision for termination. Often a certain notice period will have to be observed, for example a period of several months. If a contract is entered into for a definite period, for example for the duration of one year, premature termination is in principle not possible, unless otherwise agreed.
If a contracting party wishes to terminate an agreement immediately in connection with the Corona crisis, it must be considered whether there is another basis for doing so. It may be that the contract or general terms and conditions contain a provision for this. However, the law also offers possibilities. For example, a contract can be terminated if there is a shortcoming on the part of the other party. Suppose your contracting party does not fulfill its payment or delivery obligation. In that case, you may be able to (partially) dissolve the contract. It is important in this case to assess whether performance is temporarily or permanently impossible. If performance is still possible, you must first give your contracting party the opportunity in writing to fulfill its obligations within a reasonable period. Only if your contracting party fails to comply even then can you dissolve the contract. Note: the question is whether the Corona crisis justifies dissolving the contract in its entirety immediately. In some cases, partial dissolution may be sufficient.
In the current situation, unforeseen circumstances may also be invoked (6:258 BW). Pursuant to this article, a contracting party can claim in court that the contract be amended or dissolved in whole or in part if unforeseen circumstances exist. It must be a circumstance that the parties did not take into account in the contract. Obviously, most companies did not take into account the exceptional situation that has now arisen as a result of the Corona virus. For a successful claim for modification or dissolution of the contract, the unforeseen circumstances must result in the other party not being able to expect unchanged maintenance of the contract. Whether the current Corona crisis is such an unforeseen circumstance will have to be assessed on a situation-by-situation basis. Complete termination of the contract will not be justifiable quickly, as the Corona crisis will hopefully pass again within the foreseeable future. It is therefore advisable that the parties themselves enter into discussions on a possible adjustment of the agreement, whereby the risks of the Corona crisis are shared between the parties. Incidentally, a certain risk allocation may result from the agreement, so it is good to check the agreement in this regard as well. In addition, compensation measures taken by the government can be taken into account.
The main rule is that agreements made must be fulfilled. If you cannot fulfill your obligation to deliver, you are in breach of the contract. This means that, in principle, your contracting party has the option of claiming performance or dissolving the contract. In addition, your contracting party may be able to claim compensation for the damage he suffers as a result of the failure to deliver (on time).
If you are actually unable to deliver as a result of the Corona crisis, your contracting party cannot demand performance. Moreover, in that case you may be able to invoke force majeure (Article 6:75 of the Civil Code). To successfully invoke force majeure, you must prove that 1) there is an impediment to performance, which 2) cannot be attributed to your fault and 3) is not for your account by virtue of the law, legal act or generally accepted practice. In short, this means that you must actually be unable to fulfill your delivery obligation or it must be practically too inconvenient and caused by a circumstance beyond your control. Whether the Corona crisis justifies a claim of force majeure will have to be assessed on a situation-by-situation basis based on the circumstances of the case. For example, if a government-imposed ban prevents delivery, a force majeure claim will probably succeed. If delivery is possible, but has become much more expensive, for example, a plea of force majeure will probably not succeed. In addition, an agreement may have deviated from the statutory regulation of force majeure. The concept of force majeure may have been expanded therein, so that an appeal will succeed more quickly, or it may have been restricted. If the force majeure claim succeeds, your contracting party cannot claim performance or damages. Other consequences of a successful appeal to force majeure may also follow from the contract, such as an obligation to renegotiate or the possibility of (temporary) suspension.
If an appeal to force majeure fails, it may still be possible to invoke unforeseen circumstances (6:258 BW). Pursuant to this article, a contracting party can claim in court that the contract be amended or dissolved in whole or in part if unforeseen circumstances exist. It must be a circumstance that the parties did not take into account in the contract. Obviously, most companies did not take into account the exceptional situation that has now arisen as a result of the Corona virus. For a successful claim for modification or dissolution of the contract, the unforeseen circumstances must result in the other party not being able to expect unchanged maintenance of the contract. Whether the current Corona crisis is such an unforeseen circumstance will have to be assessed on a situation-by-situation basis. It is therefore advisable that the parties themselves enter into consultations on a possible adjustment of the agreement, whereby the risks of the Corona crisis are divided between the parties. Incidentally, a certain risk allocation may result from the agreement, so it is good to check the agreement in this regard as well. In addition, compensation measures taken by the government can be taken into account.
Several businesses were closed for certain periods of time during the Corona crisis. This may result in their inability to purchase the usual products or services. If purchase is actually impossible (temporarily or otherwise) as a result of the Corona crisis, compliance with the purchase obligation cannot be claimed. In many cases it will then be possible to invoke force majeure. In principle, however, this does not affect the payment obligation, unless unforeseen circumstances can be invoked (Article 6:258 of the Civil Code). Pursuant to this article, a contracting party can claim in court that the contract be amended or dissolved in whole or in part. It must be a circumstance that the parties did not take into account in the contract. Obviously, most companies did not take into account the exceptional situation that has now arisen as a result of the Corona virus. For a successful claim for modification or dissolution of the contract, the unforeseen circumstances must result in the other party not being able to expect unchanged maintenance of the contract. Whether the current Corona crisis is such an unforeseen circumstance will have to be assessed on a situation-by-situation basis. Apart from that, the question is of course whether you want to hold your contracting party to (payment) obligations unimpaired at this time. It is a good idea to see whether you can come to a solution by mutual agreement, for example by postponing delivery to a later date or by making arrangements for (partial) payment.
In short, invoking suspension requires that your contracting party fails to fulfill its obligations under the contract. Suppose your contracting party fails to deliver, then you can suspend your payment obligation. Please note that a right of suspension may be extended or limited in the contract or general terms and conditions. Before proceeding to suspend, it is therefore important to check the agreements made. If an unjustified suspension is made, you run the risk of being held liable for any damages incurred by your contracting party.
Can your contracting party fulfill its obligations? Then, in principle, you can also be held to them, unless, for example, you can invoke force majeure or unforeseen circumstances. However, you can of course enter into discussions with your contracting party to see if agreement can be reached on a (temporary) adjustment of the agreement during the Corona crisis.
Despite the Corona crisis, new agreements are (fortunately) still being made in various industries. Of course, the Corona crisis may suddenly turn out to have unpleasant consequences for these new agreements as well. If the contract itself contains nothing about possible consequences, the law must be invoked. Consider an appeal to force majeure (Article 6:75 BW) or unforeseen circumstances (Article 6:258 BW). However, an appeal to force majeure or unforeseen circumstances will not easily succeed if it concerns a contract that was concluded at the time of the Corona crisis. After all, in that case the parties could already have taken the situation into account. In view of this, it will soon be ruled that the circumstance in question is a circumstance for the account and risk of the party invoking it. When entering into new contracts, it is therefore particularly important to think in advance about the possible consequences of this, for example not being able to deliver (on time), and to include a provision for this in the contract. This provision must specifically address the situation as a result of the Coronavirus and the consequences this has for the agreement. In addition, consider a good force majeure clause in the contract or the applicable general conditions, in case such a situation should arise again in the future.
Naturally, the Corona crisis directly affects corporate cash flow. In this Infographic you will find five tips to ensure the best possible cash flow. In principle, inability to pay does not constitute force majeure within the meaning of Article 6:75 of the Dutch Civil Code. This could be different in the current Corona crisis, for example because revenues have been completely lost due to a government-imposed closure. Whether force majeure can indeed be successfully invoked will have to be assessed on the basis of the circumstances of the case.
As attorneys for business owners , we understand the importance of staying ahead. Together with us, you will have all the opportunities and risks in sight. Feel free to contact us and get personalized information about our services.