Coronavirus emergency – force majeure in business relations
As it was underlined by academics and other legal professionals at the time when the new Hungarian Civil Code was introduced back in 2014, the general concept of contractual liability had become severer. Before 2014 a person in breach of contractual obligations could be exempted from liability if it could be proven that the person in breach acted reasonably in the concerning circumstances, however, under the new laws such person in breach could only be exempted from liability if he can prove the followings: (1) the breach was resulted by circumstances beyond his control and (2) such circumstances were unforeseen at the time of entering into the contract, and (3) there had been no reasonable possibility to take action for preventing such circumstances or mitigating the damage. Accordingly, a person in breach shall be able to prove the simultaneous occurrence of these three circumstances in order to become exempted from liability for a breach of contract.
According to the Supreme Court’s interpretation ‘circumstances beyond someone’s control’ can be considered as a force majeure, however, not all kinds of force majeure trigger exemption from liability for the party in breach, but rather if the given circumstances fall under the control of the breaching party, then, even if such qualifies as a force majeure, the person in breach will not be exempted from liability.
The mere fact that the person in breach cannot influence the situation does not necessarily means that such situation is beyond his control therefore, the breaching party cannot always claim exemption from liability based on force majeure.
It has been outlined by the Supreme Court that there are “internal” objective circumstances that cannot be influenced by the breaching party and cannot be prevented even by careful measures, however, those still fall under the control of the person in breach and so he cannot be exempted from the liability for damages.
General civil rules and the contractual terms shall be applicable even in case of an epidemiological emergency. The mere fact that there is an epidemiological emergency shall not necessarily result in an exemption from the contractual obligations and from the contractual liability.
However, the situation is different if restrictive measures are implemented with regard to the epidemic, provided that such measures prohibit the performance under a contract or otherwise make it impossible operate. These cases shall be indeed deemed as “external” circumstances that result in exemption from liability.
The other condition needed for the exemption from liability is that the circumstances led to the breach were unforeseeable at the time of entering into the contract. Although there is a good chance to prove such condition in case of contracts that were concluded before the epidemic, however, regarding agreements concluded after the spread of the virus it is a matter of close consideration whether, at the time of the agreement, the difficulties caused by the epidemic were foreseeable or not.
It should also be taken into consideration what kind of measures can be reasonably expected from a contractual party to prevent the effects of pandemic.
In accordance with the above interpretation we strongly advise not to “sit back and do nothing” as the progressive and proactive behaviour, reasonable measures are expected by the law, even in case of a pandemic; all efforts to fulfil the contractual obligations and to mitigate damages shall be in all cases individually considered. Also bear in mind that much can depend also on the actual wording of the concerning contract.