The corona crisis as an unforeseen circumstance
Written by:
Hein Kernkamp
The corona pandemic
The corona pandemic is the outbreak in 2019 and worldwide spread in 2020 of the disease COVID-19, which has led to drastic measures taken by almost all countries of the world, with profound consequences for society and the economy; the corona crisis. In the Netherlands, its cafes and restaurants are closed, people work from home and the shoppers remain largely at home. Major events may no longer take place. Dentists only treat emergencies and are otherwise thumbs. Flowers can no longer be exported and the international transport sector is seriously affected, to name a few of the major consequences.
Consequences for current contracts
The corona crisis has caused many entrepreneurs problems due to its nature and size. Despite government support measures, quite a few entrepreneurs are unable to perform as agreed by contract. It may be possible to invoke temporary or more permanent force majeure. This article is not about force majeure, but about another - almost never used - provision of the Dutch Civil Code, which concerns the imprévision or unforeseen circumstances. The provision was introduced in 1992 when the new Dutch Civil Code entered into force in phases after years of preparation and postponement.
The corona crisis as an unforeseen circumstance?
Pursuant to Section 6: 258 of the Dutch Civil Code, a debtor can request the court to amend the consequences of an agreement or to dissolve it in whole or in part on the basis of unforeseen circumstances (i.e. circumstances that have not been discounted in the contract). These circumstances must be of such a nature that the counterparty cannot expect unaltered maintenance of the agreement by standards of reasonableness and fairness.
Jurisprudence on the imprévision
Case law shows that the judge applies the imprévision with restraint. During the 2008 mortgage and banking crisis, it turned out that the bar is very high to make a successful appeal to the provision. According to the judge, the mortgage crisis was part of the normal business risk, so the change of circumstances did not suffice to break open the contracts. But now the greatest crisis since World War II is occurring and the question is once again relevant whether the consequences of agreements can be changed.
Reasonableness and fairness
With the introduction of the new Dutch Civil Code in 1992, reasonableness and fairness have become a prominent part of contract law. The execution of an agreement is not only governed by the agreement itself, but also by reasonableness and fairness (art. 6: 2 and 6: 248 DCC). Reasonableness and fairness mean that parties, including commercial parties, must take into account each other's legitimate interests (HR October 19, 2007, NJ 2007/565 Vodafone / ETC).
The reasonableness and fairness in unforeseen circumstances
If one combines the imprévision and the reasonableness and fairness, this results in a (re) negotiation obligation according to the legal literature. Therefore, in the event of unforeseen circumstances, reasonableness and fairness may entail a negotiating obligation. So the solution is not yet given, but the solution direction is. The first step is to negotiate, the second one to go to court.
What is the probability of success?
That is, of course, hard to predict. There are two major hurdles to overcome. The first is, of course, a successful appeal to unforeseen circumstances. The second is that the judge will in his decision have to align as much as possible with what the parties originally intended and with the risk distribution that was initially included in the agreement. This can be concluded from explanations by the minister that can be found in the parliamentary history of the new Dutch Civil Code.
A first conclusion
Tenants who think that they do not have to pay rent will not get the judge on their side. The solution will always have to match what the parties had in mind. And the tenant undeniably bears a large part of the operating risk. On the other hand, the landlord rents out an object that should be suitable for exploitation and the judge may want to compensate the tenant by also letting the landlord take part in the pain of the impossibility to use the property usefully.
And this is just one example. Similar regulations exist internationally. We will have to see how case law on the corona crisis and unforeseen circumstances will develop in the Netherlands and in other countries.
Would you also like to discuss the consequences of unforeseen circumstances for your contract?
Do not hesitate to contact us to discuss your situation without obligation. Then we can indicate what we can do for you, so that you know where you stand with us. It is not without reason that our motto is: "Your problem, our concern."
More information?
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