13 March, 2020
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Is COVID-19 a case of force majeure?

Unfortunately, it is precisely situations such as the COVID-19 pandemic that demonstrate the wisdom of contracting for force majeure and “rules of the game” in the event of force majeure in commercial contracts. In many cases, companies, and lawyers themselves, do not pay attention to these “ancillary” provisions. If any positives can be drawn from the COVID-19 pandemic, then it is the learning that no provision of a commercial contract is incidental or irrelevant, and in particular the force majeure provisions.

If your contracts fail to clearly define what constitutes force majeure then you should know the following.

Namely, Serbian law regulates force majeure in a very general way in Article 263 of the Torts and Contracts Act, where it provides that only those circumstances that arise after conclusion of a contract that could not be prevented, eliminated or avoided constitute cases of force majeure. Only if your business has been hit by pandemic-related circumstances will you not be liable for damages to contracting partners if you failed to deliver services or goods on time.

Of course, whether or not your business has been hit by a pandemic-related circumstance that you could not prevent, eliminate or avoid should be assessed on a case-by-case basis. Therefore, let us provide you with a hypothetical scenario in which a company hit by pandemic-related force majeure would not be liable to its contractual partner(s) for failure to deliver services or goods on time.

Authorities have banned people and goods from Italy entering Serbia due to the COVID-19 pandemic that has rocked Italy. If our hypothetical company, prior to this ban, had concluded a contract to fit out the sanitary facilities of a newly constructed building exclusively with Italian ceramics and it has received an advance payment for the purchase of ceramic material subject to the sanitary facilities being fitted out within 2 months, then the company would be deemed as having being affected by force majeure and would not be liable to the developer of the newly constructed building if it does not finish the fit out of the sanitary facilities on time. Here’s a simple explanation. Our hypothetical company could neither prevent, eliminate nor avoid a ban on the entry of goods and people from Italy, and could not import ceramic material from Italy and consequently would not be able to finish the fit out for the investor on time.

 

For more information, please contact us via covid19@geciclaw.com