Dealing with covid-19 consequences under dutch contract law
- 25 May 2020
by Peter J. Fresacher
This introduction has been set up to inform by showing some of the basic differences between the Continental legal system and the Anglo-Saxon legal system
- Force majeure as concept of law
1.1 One of the major differences between the Continental legal systems and the Anglo-Saxon legal systems is that although both are familiar with the concept of force majeure, the Continental system has defined that concept and incorporated it in its laws, whereas the Anglo-Saxon systems has not.
The consequences of this are that if an unforeseen event occurs, in the Continental systems, the law guides the parties in answering the questions (i) if the event may be categorised as force majeure and (ii) what are the consequences on the obligations of the parties under and in respect of such agreement, whereas under the Anglo-Saxon system the parties have to define beforehand which events may be categorised as force majeure and provide for the consequences that may have.
1.2 Under Dutch law the most relevant basic provisions are found in Book 6 of the Dutch Civil Code (“Burgelijk Wetboek”), BW; systematically: Book 6: The law of obligations; Title 6.1: Obligations in general; Section 6.1.9 Effects of non-performance; Subsection: 188.8.131.52 General provisions; articles 6:74 and 6:75.
Article 6:74 BW (falling short in performance)
– 1. Any falling short in respect to the fulfilment of an obligation results in the obligation of the debtor to remedy the damage the creditor has suffered as a consequence thereof, unless the falling short may not be attributable to the debtor.
– 2. (…)
Article 6:75 BW (force majeure)
Falling short cannot be attributed to the debtor, if the falling short may not be legally blamed on the debtor, be it by virtue of the law, a legal act or following “generally accepted principles in daily life (communis opinio, scr.)” to be on the account of the debtor.
(These are fair office translations only.)
1.3 The most striking difference lies in fact that the Continental system in the respective civil codes provides for general rules which are applied to determine if a situation may be classified as force majeure (thus without requiring the parties to define the unexpected and unthinkable upfront) and which consequences that may have for the parties.
- General situations which hinder performance under COVID-19
2.1 The most basic situations found as a consequence of non-fulfilment of contractual obligations are
(i) performance has been prohibited by the authorities;
(ii) performance has voluntarily been suspended following strong advice by the authorities;
(iii) pre-emptive non-performance by e.g. termination or suspension of a future contractual performance.
2.2 These scenarios have to be considered in the light of the fact that the COVID-19 pandemic qualifies as an unheard of, and for modern times unprecedented, situation with worldwide effect and lacking an instant remedy.
As a consequence, uncertainty rules, and the authorities rely on the most basic measures, e.g. quarantine, isolation, limitation of spreading infection.
- Force majeure or not?
3.1 It is impossible to determine, if all short falling in the performance under an agreement may qualify for allowing protection under the force majeure provision of the Dutch civil code (article 6:75 BW).
The only way to determine this is to examine the facts and then apply the provisions specified in article 6:75 BW meticulously, in each individual case. However, even after having done so, certainty will only be available if and when the Supreme Court has handed down judgement, and even then, only for that individual case.
3.2 Since the COVID-19 (or a similar) situation has not been dealt with in court in the past 75 years, there is no specialty jurisprudence which may guide the way. However, there is jurisprudence which relates to non-performance and the remedies thereof in general.
- Additional remedies e.g. Unforeseen Circumstances
4.1 In a situation which would not allow a successful application of the provisions of force majeure, there would still be remedies left, e.g. the provision of article 6:258 BW, which deals with the concept of what a court could undertake in case a contract between parties shows or a party to a contact is confronted with, unforeseen circumstances.
4.2. The relevant legal provision is article 6:258 BW, which reads in a fair office translation:
Article 6:258 BW (unforeseen circumstances)
-1. The court may, following a claim by one of the parties, change the consequences of an agreement or dissolve the agreement entirely or partially on grounds of unforeseen circumstances which are of a nature, that the other party may, based on the principal good faith (in the performance of an agreement, scr.), not be expected to keep up the agreement unchanged. These changes may be given retrospective effect.
-2. A change or the dissolution shall not be granted in as far as the circumstances based on the kind (wording, scr.) of the agreement or on basis of the “generally accepted principles in daily life (communis opinio, scr.)”, be for the account of the party which seeks protection under this provision.
– 3. (…)
4.3 This provision requires legal proceedings to be raised if the parties would be unable to reach an out of court solution.
As this article reflects one of the basic principles of Dutch contract law, it may always be called upon by a party to an agreement.
Furthermore, the interpretation of (the contents of) agreements under Dutch law is based on the principle good faith, which has also been reflected in the so called Haviltex-judgements handed down by the Supreme Court.
Very short and only to give a limited insight: not only the wording of the agreement is decisive but also all relevant circumstances influence the interpretation of (the performance under) an agreement, e.g. what the specific parties, hence and forth, may have expected.
- What to do if confronted with COVID-19 consequences on the performance of a contract?
5.1 Take out legal advice immediately and well before talking to the other party, in order not to damage your own position.
Bear in mind, that the Dutch law on contracts may not be assumed to be similar to that in other jurisdictions.
5.2 Feel free to contact the author:
Peter J. Fresacher, advocaat (Dutch barrister and solicitor)
(Published 25th May, 2020)