What is force majeure?
In principle, the notion of force majeure is not expressly defined under the Greek law. Nonetheless, according to settled case law, force majeure is defined as an unforeseeable event, that could not be avoided even if extreme care has been taken and cannot be attributed to any contracting party, such as earthquakes, floods, wars and so forth. Typically, contracts include force majeure clauses, enabling the affected party to opt out from its contractual obligations.
Is Covid-19 force majeure according to the Greek law system?
Whether Covid-19 can be construed as force majeure depends, inter alia, on the wording of the clause. When a force majeure clause refers to a “pandemic”, “epidemic”, “disease” or similar terms, it goes without saying that coronavirus is covered under the clause. In the absence of such an explicit reference, coronavirus may still be covered under a broadly framed clause, that is a clause including phrases such as “any event that is beyond the control of the parties” or “act of God or nature” or referring to a non-exhaustive list of events. However, in some contracts the events that constitute force majeure are exhaustively enumerated, and there are not any catch-all phrases. Still, even if the coronavirus pandemic itself cannot be covered, the restrictive measures taken by governments throughout the world or changes in legislations, for instance the suspension of operation of an industry or the border shutdowns, to fight the spread of the virus, may fall within the ambit of force majeure.
Attention is drawn to the fact that the coronavirus epidemic- and all the force majeure events for that matter- cannot be relied upon solely on the basis of its existence. To effectively assert force majeure as a defence, companies should prove a causal link between coronavirus and the inability to execute the contract; in other words that the contractual obligations have been prevented or delayed because of the virus outbreak. It does not suffice that the execution of the contract has become more economically burdensome or more inconvenient. In the same vein, contractual obligations cannot be deferred, under the force majeure clause, as a precautionary measure. It should be also borne in mind that force majeure cannot be used to excuse default of a party to fulfil its obligations, where the non-performance is attributed to the party.
Whether coronavirus has affected the party, invoking the force majeure clause, to such an extent that the contract cannot be performed, for the duration of the event, is a question of fact. The onus of proof of the impact falls on the party relying on the force majeure clause. The latter must also prove that all the reasonable steps to mitigate the consequences of the event have been taken.
It goes without saying that for the contracts concluded following the coronavirus spread, and, a fortiori, the declaration of the virus as pandemic by WHO on 11 March 2020, the answer would be different, depending on the industry, the stage of the epidemic, the degree of impact, the possibility to foresee the consequences and the contract clauses.
With regard to the real estate contracts to be concluded, a standard force majeure clause, covering the event of an epidemic, should be added therein, to provide security for the parties. In case there is not a relevant provision (which is quite common in Greek real estate contracts) the provisions of the Greek Civil Codes are applicable (pls see below).
Which are the consequences of invoking the force majeure clause?
Subject to the provisions of each contract, the force majeure clause discharges the parties from their respective obligations for as long as the event continues. Typically, there is a requirement of a formal notice, within a specific timeframe, notifying the other party of the event that gave rise to the invocation of the force majeure clause. Failure to comply with the aforesaid notification requirement may result to liability for damages. In the absence of such a specific requirement, the affected party still has the obligation to promptly notify its counterparty, under the principle of good faith.
Depending on the terms of each contract, the parties may have agreed to continue the performance of their obligations when the event ceases to exist, considering that the event is temporary or to extend the time to fulfill their obligations. Nonetheless, in case the event occurs for a prolonged period of time, either party may terminate the contract.
The consequences, including the liability of the parties, if any, and the allocation of risks, depend on the wording of the contract in question.
What are the alternatives, if force majeure is not applicable?
Should it not be possible to rely on force majeure, usually in the absence of such a clause, the parties should explore their options under the alternative “impossibility” or the “material adverse change of circumstances” doctrine. The distinction between the two is not always clear, as they may overlap.
For these doctrines to be applied, the performance of the contract must have been rendered impossible or excessively onerous, due to an unforeseeable event, subsequent to the conclusion of the contract and for which the parties cannot be held liable. In case, the underlying purpose and object of the contract has been nullified, by virtue of such an event, the relief from the contractual obligations is also possible.
In particular, the Greek Civil Code (“GCC”) provides for the material change of the circumstances, which served as basis for the contract in good faith and honest practices. Pursuant to article 388 of GCC, the said change must result from an urgent, unforeseeable event and in turn, this change of circumstances must fundamentally alter the equilibrium of obligations and render the performance of the contract excessively onerous for the affected party. Upon the application of the affected party, the Court may readjust the contractual obligations to the appropriate extent or decide that the contract must be terminated as a whole or in part, i.e the part of the contract that has not been executed yet. In case the termination of the contract is adjudicated, the parties are relieved from their contractual obligations and they have to return any benefits they have received pursuant to the unjust enrichment provisions.
The same provision has been employed during the Greek financial crisis, for the adjustment of the rent paid for property lease to illustrate a fair and realistic situation.
Similar doctrines are incorporated in most legal systems and have been acknowledged as general principles of the European contract law or have been incorporated in instruments for the international commercial contracts.
What should the companies consider?
In principle, companies are encouraged to seek amicable solutions, be cautious with unilateral decisions and take less drastic actions prior to invoking the force majeure clause, for example renegotiation of the contractual terms. In any case, companies should carefully review their contracts to identify their rights and obligations and assess the risks associated with the non-execution of contracts and the alternative means of performance, so as to minimize the business disruption. When the force majeure clause is nevertheless invoked, companies should promptly notify the other party and comply with all the relevant requirements set out in the contract at issue. Additionally, companies should also retain documentation and correspondence supporting the claim for non-performance due to coronavirus (or other event) as means of proof, that could be of use in the context of a potential litigation.
Legal advice should be sought in relation to the possibilities to terminate or suspend a contract, against the background of the coronavirus pandemic.
All in all, it remains to be seen how the courts will respond to these matters, but in these unprecedented circumstances, it is expected that an all-embracing approach will be adopted. That said, each contract will be examined in the light of its legal and factual context, on a case by case basis.
Disclaimer: This article is provided for information purposes only. It is not intended as and do not constitute legal advice and should not be relied upon as such. For any further information please contact: charistos@nexuslaw.gr
Thanos I. Charistos
Supreme Court of Greece Attorney at law
