In the current epidemiological situation, the question often arises: if we are unable to perform the contract due to the situation caused by the coronavirus, can we invoke it in order to be exempted from liability for breach of contract? The answer to this question is as follows:
1. When are we relieved of the consequences of a breach of contract?
If the Hungarian law is applicable to the given contract, the non-performance or improper performance of the contract shall be considered a breach of contract according to the Civil Code.
If we are liable for a breach of contract, we are obliged to compensate the damage caused to the other party, unless it is excluded from its liability under the escape clause.
The exemption clause requires three cumulative conditions for our exemption:
a) the detriment has occurred outside our so called control,
b) the circumstance caused detriment could not have been foreseen by us at the time of the conclusion of the contract, measured by objective criteria, and
c) it should not be expected that we will avoid the circumstance that prevents performance of the contract or eliminate its consequences.
We have to prove the existence of those conditions for exemption, as regards the interpretation of those conditions:
In the current state of science and technology it is quite clear that we are not responsible for the development and spread of the coronavirus as a contracting party.
The coronavirus epidemic and its consequences were obviously unforeseeable in the case of contracts concluded in the past, but we can no longer refer to it in the case of contracts concluded after the emergence and spread of the epidemic.
Finally, it is also quite clear that it is not yet possible to avoid the coronavirus or reverse its consequences in the absence of an effective antidote.
2. How to act in practice?
If we refer to the coronavirus as a reason to prevent the performance of the contract in order to be exempt from liability, then in addition to the above, it is necessary to examine whether the contract itself contains so-called force majeure provisions and whether it lays down special provisions in the event of force majeure beforehand.
In the absence of specific provisions on force majeure in the contract it is to be examined in the light of all the circumstances of the given case whether the corona virus may be relied on to obtain an exemption from breach of contract. In doing so it is important to examine the nature of the service or the product that is the subject of the contract, the deadline for performance, the geographical environment affected by the contract, and other specific circumstances.
3. Questions from a practice
The complexity of the problem is illustrated, for example, by the case below: the lease agreement of business-premises in a mall makes it compulsory to keep the opening hours allotted for the shops, but at the same time the tenant would close his business due to reduced turnover and also to protect his own employees. Is the tenant breaking a contract by closing the shop? Does he have to pay rent for this time? Can we refer here to the provision of the Civil Code that for the period during which the tenant may not use the subject for a reason outside his own interest, he should not pay rent?
4. Let’s co-operate together!
In the current epidemiological situation it is extremely important that we fulfil our most important contractual obligation: the good faith and fair cooperation! Despite the force majeure situation we are looking for a compromise solution together with our contracting partner because we can only mitigate the economic effects of the epidemiological situation together!
The above summary is general information and does not constitute legal advice in an individual case.
Should you have any further questions regarding the interpretation of contractual issues related to force majeure and the contracts to be concluded in the midst of performance difficulties due to the coronavirus, Alliott Group member Fehér Legal & Tax is at your disposal in Hungary and 70 other countries around the world.