Commercial Agents & Corona Pandemic: the effects on agency and distribution contracts

Published by the IUCAB Legal Working Group

The analysis includes Italy, France, Germany, Spain, England & Wales, Netherlands, Sweden, Finland, USA and International law.

The COVID-19 Pandemic declared by the WHO has caused many difficulties for companies and individuals in carrying out their business activities.

The effects of the Pandemic on the economy, especially on sales of non-essential goods and on the possibility of organizing meetings, reunions and trade fairs, have already been felt and it is worth reflecting on the remedies offered by the law and by governments to deal with them, with specific regard to agency and distribution contracts.

As in other sectors, the one in which commercial agents and distributors operate is experiencing serious difficulties whose effects have not yet been seen; think, for example, of the agent that is bound by a minimum budget of orders per year or the distributor that has the obligation to periodically purchase a predetermined quantity of goods, under penalty of termination of the contract and obligation to pay damages.

International conventions and European laws do not regulate the issues we are experiencing with regard to such contractual practices, and commercial contracts either they don’t include Force Majeure or Hardship (frustration of the contract) clauses, or, if they do, the clauses thereof aren’t specific enough to regulate the possible disputes arising from the pandemic.

Therefore, if a party is in breach of its obligations due to (also indirectly) the restrictions imposed in response to the Pandemic, reference should be made to the rules laid down by the applicable national law.

None of the countries listed below has specific legislation on agency contracts and distributions to regulate the problems arising from the health emergency we are facing. It follows that, in the absence of specific regulations issued by the corresponding governments to resolve the effects of the pandemic on contractual relations, reference must be made to the principles of contract law in force in each country.

Herein after an analysis of the different approaches to the effects of the Pandemic in some of the most relevant countries, with a reflection on the possible remedies offered by each country.

ITALY

Italy was the first European country to face the Pandemic and in a short time the government adopted drastic measures such as the closure of non-core economic activities and the restriction of the free movement of people and goods.

The effects of these measures on the economy are evident and, therefore, the government provided an initial response with Decree-Law no. 9 of March 2, 2020, providing that for those who work in the cities affected by the regulation (located in the regions of Lombardia and Veneto), the terms for contractual obligations were suspended from February 22 to March 31 of this year (see art. 10 of Decree-Law no. 9). The regulation, however, was not extended beyond the limited territorial (and temporal) scope for which it was conceived, and has now lost its effectiveness, leading to the resumption of the terms thereof.

The Italian Government intervened with Decree-Law no. 18 of March 17, 2020, (introducing the new paragraph 6 bis to art. 3 of Decree-Law no. 6 of February 23, 2020) stating that “Compliance with the containment measures referred to in this decree is always considered for the purposes of exclusion, pursuant to and for the effects of articles 1218 and 1223 of the Italian Civil Code, of the debtor’s liability, also with regard to the application of any forfeiture or penalties connected with delayed or failed performance” (see Article 91 of Decree Law 18/20 cit.).

It follows that, whoever is prevented from performing his contractual obligation due to the need to comply with “the measures of containment” ordered by the Public Authority, may invoke this requirement as an impediment not imputable to him that has made his performance impossible (art. 1218 Civil Code).

However, the protection is partial. First of all, because the exemption from liability does not operate automatically, but imposes, from time to time, an assessment of the cause/effect relationship between the compliance with the containment measure and the type of breach.

Secondly, the provision exempts the breaching party from liability (obligation to pay damages – art. 1218 and 1223 of the Civil Code), but does not eliminate the breach itself, thus leaving the breaching party exposed to the risk of termination of the contract.

Finally, the rule assumes that the non-performance depends on the need to comply with the containment measures (among other things, not even adequately identified) and does not consider, instead, the hypotheses (probably more numerous) in which the non-performance is a consequence of the wider worldwide emergency situation (think, for example, of the activities, whose exercise is not prohibited by law, but which, due to supply difficulties or lack of liquidity, are not able to fulfill their obligations).

It is necessary, therefore, to refer to the general principles of Italian Law, for the commercial relations that are subject to it; and in particular, to articles 1256 and 1467 of the Civil Code containing the rules for the cases in which the contractual obligations have become impossible or excessively onerous to fulfil. Although in Italian law there is no definition of the concept of Force Majeure, the circumstances described in the articles in comment are as close as possible to that concept

Art. 1256 of the Italian Civil Code provides for the extinction of the obligations whose performance cannot be performed due to definitive impossibility and the exclusion of the debtor’s liability for the delay in performing those obligations that cannot be performed temporarily due to temporary impossibility. The (permanent or even only temporary) impossibility of performance must, however, be caused by an unforeseeable event that operates by its own force and is beyond the debtor’s control.

Art. 1467 of the Italian Civil Code, on the other hand, operates in a prodromal phase to the possible fulfilment of the contract and applies only to contracts with continuous or periodic execution or deferred execution, attributing, to the part of the contract whose performance has become excessively onerous (due to extraordinary and unforeseeable events), the power to request the termination of the contract, if the relative terms are not renegotiated fairly.

The COVID-19 Pandemic certainly represents an unforeseeable and uncontrollable natural event, but in order for the protections of art. 1256 and 1467 of the Civil Code to be invoked, it is necessary that the Pandemic or, more generally, the relative legal and economic implications, have had a causal effect on the non-fulfilment or excessive onerousness of a contractual performance.

FRANCE

The Minister of Economy and Finance, Bruno Le Maire, declared on February 28, 2020 that the coronavirus (Covid-19) would be “considered as Force Majeure for businesses”. However, there is as yet no text or decision that confirms this, except for public markets, where the COVID-19 Pandemic has been recognized as a case of Force Majeure. Consequently, for all state and local public contracts, the delay penalties will not be applied.

In addition, many professionals agree that this Pandemic is not a case of Force Majeure, because it was not unpredictable. This reasonings are based in particular on various global epidemics that have taken place, for which the qualification of force majeure had not been retained by the courts. This was particularly the case of the H1N1 flu in 2009, the dengue virus or that of chikungunya. According to this case law, an Pandemic is therefore neither necessarily nor automatically a case of Force Majeure.

Under French law, the Civil Code of 1804 did not define Force Majeure, that had been defined by case law. The judges, under the empire of the old art. 1148 of Civil Code, characterized the Force Majeure by the combination of three elements: unpredictability, irresistibility and exteriority.

With the law of February 10, 2016 reforming contract law, the definition of Force Majeure entered in the Civil Code under new article 1218:

Art. 1218. –In contractual matters, there is force majeure where an event beyond the control of the debtor, which could not reasonably have been foreseen at the time of the conclusion of the contract and whose effects could not be avoided by appropriate measures, prevents performance of his obligation by the debtor. If the prevention is temporary, performance of the obligation is suspended unless the delay which results justifies termination of the contract. If the prevention is permanent, the contract is terminated by operation of law and the parties are discharged from their obligations under the conditions provided by articles 1351 and 1351-1.

Three criteria are required for Force majeure. There must be an event:

• “ which could not reasonably have been foreseen at the time of the conclusion of the contract ” unpredictable
• “whose effects could not be avoided by appropriate measures” irresistible
• “which prevents performance of the debtor’s obligation” external.

In addition, the Force Majeure event must temporarily or definitively prevent the execution of the contract in question. This is a principle that applies in public law, private law, contractual and tort liability.

The consequences of Force Majeure on contracts depend on the situation:

• If the impediment to perform the contract is temporary, it’s simply suspended and its execution will begin when possible. The contract is suspended;
• If the impediment to perform the contract is definitive, the contract is terminated. It is the case of termination or breach of contract due to Force Majeure .

These elements constitute a guideline given by the law. Indeed, the parties of a contract can provide for several derogating clauses in the contracts.

It’s, for example, possible to exclude Force Majeure from the contract or to provide for a limitative list of cases in which it can be invoked.

At the moment in France it is difficult to know if the current COVID-19 Pandemic constitutes a case of Force Majeure .

However, many consequences resulting from the occurrence of the COVID-19 Pandemic, could be described as unpredictable and irresistible. This is particularly the case for binding administrative decisions such as traffic restrictions or the ban on assemblies. These decisions of the public authorities, qualified in law as “fait du prince“, in that they limit and prohibit the assembling and displacement of people, are also circumstances of Force Majeure constituting an insurmountable obstacle to the execution of conventional obligations.

We must therefore remain vigilant because the French Government may soon communicate new information on this subject.

GERMANY

In order to deal with the Covid-19 Pandemic, Germany has passed “The Law on Mitigating the Consequences of the COVID-19 Pandemic in Civil, Bankruptcy and Criminal Procedure Law”

With regards to Contract Law:

The new and temporary Art. 240 § 1 of the German EGBGB, provides a right to refuse performance for consumers and micro-businesses (companies with less than 10 employees and a maximum annual turnover of EUR 2 million) until June 30, 2020. These apply to essential long-term contracts which have been concluded before March 8, 2020. Permanent obligations are essential within the meaning of the law if they are necessary to cover with services for the appropriate continuation of the business. This includes in particular compulsory insurance, contracts for the supply of electricity and gas or telecommunications services and for water supply and disposal.

Contractors in the described company category who are unable to fulfill their contractual obligations due to the COVID 19 Pandemic are given the right to temporarily refuse or cease their performance without being subject to any adverse legal consequences. This does not only mean that the contract debtor does not have to provide the service owed. This also excludes liability for damage caused by delay and an obligation to pay interest. The moratorium is limited to June 30, 2020. An extension option (up to a maximum of September 30, 2020) has already been created in the law. The exercise of the right to refuse performance is excluded if the contractual creditor cannot be reasonably expected to exercise it. In this case, the micro-entrepreneur has the option of being released from the contract.

With regards to Tenancy Law:

The landlord’s right of termination due to rent arrears is temporarily suspended, provided the tenant substantiates that the failure to pay the rent is attributable to the effects of the COVID-19 Pandemic. The regulation applies to residential and commercial leases as well as tenancy agreements.

Finally, referring to Bankruptcy Law:

Obligation to file for insolvency is currently suspended.

For all the does not fall within the scope of the legal provision thereof, reference should be made to the following principles of German law.

In Germany, the term “Force Majeure” is codified, but not in one particular section of the Civil Code. Instead Force Majeure appears in a number of different pieces of legislation, and its precise meaning depends on the legislative context.

What exactly constitutes Force Majeure is a question of the individual case. If a supplier’s terms and conditions contain a so-called Force Majeure clause that expressly defines epidemics and pandemics as cases of Force Majeure, the legal situation is clear.

If, on the other hand, there is no such clear definition in the Force Majeure clause, an overall view that depends on the individual case is important. To do this, the consequences caused by the Pandemic must be taken into account.

It is important to distinguish whether the COVID-19 Pandemic has a direct or indirect impact on the supply relationship. A mere delay in the supply chain will make the Force Majeure case appear less successful than a production shutdown due to an official order. State-recognized travel restrictions and quarantine measures and their effects on the supply relationship can open up the scope of Force Majeure.

In the absence of such clause on Force Majeure in the general terms and conditions, the legal regulations apply. Cases as discussed here fall under the rules of impossibility (§ 275 German Civil Code) or frustration of contract (§ 313 German Civil Code), regulated by the German civil code.

Art. 275 of the German Civil Code provides that a claim for specific performance of a contractual obligation is excluded, if the performance is impossible for either specifically the contracting party or for everyone. The obligor may also refuse performance, if the efforts required are objectively seen as unreasonable.

However, despite the possibility to refuse performance of a contractual obligation the obligor is still liable for damages due to culpable breach of contract. The question in point is therefore, whether the obligor is liable for negligently or intentionally causing the impossibility of performance. The obligor bears the burden of proof.

If a company is so heavily burdened by the Pandemic (loss of staff, official closure) that it is impossible for it to be delivered further, the obligation to perform may be excluded. This can apply even if the impossibility is only temporary. The supplier only faces claims for damages if he is responsible for the impossibility of delivery. This would be conceivable in the event of late or inadequate protective measures in the company against the spread of the COVID-19 virus. If the supplier does not have to perform due to impossibility, it cannot be ruled out that the buyer will try to withdraw from the contract without notice (Section 326 (5) BGB). The customer would, however, be fully burdened with proof of the withdrawal requirements.

According to art. 313 of the German Civil Code, a substantial change in circumstances which had become part of the contractual basis may give rise to a claim for adjustment of contract. However, this may only be the case if performance of contract as originally agreed has become unreasonable for one of the contractual parties, which is interpreted narrowly. If an adjustment is impossible or would itself be unreasonable, the contract may be terminated. An example of such a case would be the unpredicted general scarcity of certain products, although courts apply very strict standards in such cases.

SPAIN

In order to handle the COVID-19 Pandemic’s effect, Spain Government ha issued the Additional Provision 4th of the Royal-Decree 463/2020 (BOE March 14, 2020), which declared a State of Alarm, established: “during the validity of the state of alarm”, the suspension of: “the statute of limitations and expiration of any actions and rights”.

The provision thereof (which also does not have the status of Law and must be confirmed by Parliament), did not affect the terms agreed in commercial contracts, but only suspended the statute of limitations and civil expiration. The Government could have decreed it, or made it explicit in some way, but it has not been so.

The Royal Decrees-Laws, promulgated on these dates to adopt measures against the Pandemic, have established suspensions and extensions to other types of contractual terms (mortgages, leases, payment of taxes, relation with Tribunals, even suspension of tax, etc.), but not obligations and commercial or civil contracts.

However, this lack of legal support does not imply that, the Pandemic situation and the state of alarm do not affect the ordinary contractual obligations, and to solve the arising issues, reference is to be made to the followin Spanish law principles

Even if there is no express mention, art. 1.105 of the Spanish Civil Code is considered to refer to Force Majeure (together with the fortuitous case): “Outside of the cases expressly mentioned in the law, and those in which the obligation so declares, nobody will respond for those events that could not have been foreseen, or that, foreseen, were inevitable.”

Both Jurisprudence and Doctrine, have identified as Force Majeure those circumstances or events that make it impossible for the debtor to fulfil his obligations. The classic definition of Force Majeure is an extraordinary event that is unleashed from outside of the debtor’s control, unpredictable, and which would not have been possible to avoid even applying the greatest diligence. The Spanish Supreme Court established the following requirements with regards to Force Majeure: unforeseeable event and, in addition, inevitable or irresistible.

The principle of “pacta sunt servanda” (the obligation to comply with what has been agreed) (articles 1.091 and 1.256 CC) must be balanced with the Fortuitous Event and Force Majeure principles (articles 1.105, 1.602, 1.625, 1.777, etc. CC).

When the Force Majeure and Fortuitous Event principles apply, there is a limitation of the principles of risk assumption for non-compliance (art. 1.094 CC), and compensation law (art. 1101 CC).

Therefore, if the debtor’s breach fall within the scope of the Force Majeure and Fortuitous Event principles, the debtor’s responsibility ceases to exist (art. 1105 CC): “Outside of the cases expressly mentioned in the law, and those in which the obligation so declares, no one will answer for those events that could not have been foreseen, or that, foreseen, were inevitable”; and the obligation may be extinguished in the case of destruction of the thing due without the fault of the debtor (art. 1,182 CC) or impossibility to fulfil the obligation (art. 1,184 CC).

The Jurisprudence of the Supreme Court indicates that in order for the Force Majeure to apply it must be a matter of circumstances: “totally unpredictable at the time of contracting and that by themselves prevent the provision“. On the other hand, the Supreme Court also requires “good faith in the contractual field“.

In addition, another general principle of law could that could apply is the “rebus sic stantibus” clause. The Doctrine understands the application of this Principle in contracts when there is a totally unpredictable change in circumstances. It is not necessary for the obligation to be rendered impossible but there must be a serious alteration of the terms of the contract.

The situation of the current Pandemic is an absolutely unpredictable event, but for the application of the rebus sic stantibus and Force Majeure clause, it will be necessary to demonstrate direct causality between the circumstances of Force Majeure and the breach.

ENGLAND & WALES

Like the USA, English statutes do not cover this issue which arises out of our common law on Frustration and Force Majeure clauses. The general rule is that where a party does not perform its obligations under a contract, then this would give rise to liability towards the other party. In order to alleviate any potential liability arising, the affected party should consider whether it could rely on a material adverse change or Force Majeure clause or the doctrine of frustration.

No Statute or Law expressly declared the COVID-19 Pandemic a Force Majeure event, so the configurability of the pandemic as an event of Force Majeure depends on the drafting of the Force Majeure clause in the contract

Generally, if the clause is drafted broadly, it is possible that the COVID-19 Pandemic could fall within its scope. Some clauses may expressly reference ‘pandemic’ or ‘epidemic’ which would increase the likelihood of COVID-19 constituting a Force Majeure event.

Anyhow, the configurability of a Force Majeure event does not automatically exclude liability for the debtor in breach. Mitigation of the event is important and the agent should check the provisions of the relevant clause as there may be a number of conditions precedent that a party must fulfil in order to alleviate itself of certain obligations and/or liability. Common examples of conditions precedent include a requirement to notify the other party of the Force Majeure event (usually within a particular timeframe), also an obligation to take steps towards preventing/mitigating the effects of the Force Majeure event.

Changes in economic or market circumstances affecting the profitability of a contract or the ease with which the obligations can be performed are not of themselves Force Majeure events.

If a contract include a Force Majeure clause, the debtor in breach, to rely successfully on the clause, will need to show it is the event that is the primary cause of its non-performance.

The Force Majeure clause is in effect an exclusion clause and therefore it would still need to comply with the Unfair Contract Terms Act (“UCTA”). Any Force Majeure clause that is drafted heavily in favour of one party or is particularly onerous towards a party could potentially (if challenged) be struck out for being unfair under UCTA

If a contract does not include a Force Majeure clause, the contract could potentially still be terminated on the grounds of frustration. Frustration is when something occurs after the formation of the contract, which renders it physically or commercially impossible to fulfil the contract. If a contract has been frustrated, it is automatically discharged and the parties are excused from their future obligations.

The bar for Frustration to apply is very high and detailed analysis would have to be given to the precise circumstances involved. For example, if performance of the contract has become impossible or illegal (e.g. In contravention of a government order), then it may be possible to rely on the doctrine of frustration.

The courts in England and Wales will not proactively offer general guidance as to the position they are likely to take on COVID-19 issues. Rather, they will always consider legal cases on their individual merits, on a case-by-case basis, by reference to the specific facts and matters in issue, including based on statute, established legal principles and case law from similar previous cases.

Generally, the courts have always sought to hold the contracting parties to exactly what has been agreed and not to seek to imply protection for matters that the parties simply did not make specific provision for and/or turned their minds to, even if that results in seemingly unfair or unjust outcomes in all the circumstances. This is unlikely to change and a thorough evaluation of the facts in question is key.

NEDERLAND

The Dutch government has taken measures to help businesses that are affected by this crisis. An example of this is that the government will award a compensation of EUR 4.000 to business sectors that have been hit hardest by the mandatory closing until 6 April. However, there are no specific laws in the Netherlands that regulate the fate of contractual obligations that are not enforceable due to the effects of restrictions imposed to deal with the coronavirus emergency

Therefore, in order to regulates the eventual disputes arising as an effect of the COVID-19 Pandemic, reference is to be made to the relevant articles of the Dutch Civil Code, as follows:

 Art. 6:74 Requirements for a compensation for damages

1. Every imperfection in the compliance with an obligation is a non-performance of the debtor and makes him liable for the damages which the creditor suffers as a result, unless the non-performance is not attributable to the debtor.
2. As far as it is not permanently impossible to accomplish the indebted performance, paragraph 1 of this Article only applies with due observance of what is regulated in Subsection 2 for a debtor who is in default.

Art. 6:75 Legal excuse for a non-performance (force majeure)

A non-performance cannot be attributed to the debtor if he is not to blame for it nor accountable for it by virtue of law, a juridical act or generally accepted principles (common opinion).

Under Dutch contract law, the general rule is that the contracting party is liable for all damages resulting from their breach of contract, unless the breach cannot be attributed to them (art. 6:74 Dutch Civil Code). According to art. 6:75 Dutch Civil Code a breach cannot be attributed if the contracting party is not to blame for the breach according to law, legal act or generally accepted principles. Non-performance cannot be attributed to a party if he is not at fault and if the non-performance does not fall within his sphere or risk.

Generally, Force Majeure relieves the debtor from the duty of a specific performance as well as the duty to pay damages. If one party cannot perform due to Force Majeure, the other party is entitled to set aside the contract or to suspend its own performance. Under Dutch law the statutory Force Majeure provisions apply automatically to the contract. The clause usually provides that the obligation to perform may be suspended by notice given of the Force Majeure event. As a general rule of Dutch contract law, any failures of a party in the performance of its obligations, grants to the other party the power to terminate the contract. This does not require the failure to be attributable to the debtor. This means that it is possible to terminate a contract in case of Force Majeure.

The measures taken by the government to address the further spread of the COVID-19 Pandemic could constitute a legal impossibility to perform under contracts, but it depends on the specific facts and circumstances of a case. It is up to the debtor to explain and prove in details that this is in fact the case. In this case, evidence should be collected as to the impact of the coronavirus and measures that the parties may have taken. The wording of the force majeure clause and the intentions of the contracting parties will be crucial in deciding whether the parties intended it to apply to an outbreak such as the coronavirus.

In addition to Force Majeure, it is also possible to rely on article 6:258 of the Dutch Civil Code:

Art. 6:258 Unforeseen circumstances

1. Upon a right of action (legal claim) of one of the parties to an agreement, the court may change the legal effects of that agreement or it may dissolve this agreement in full or in part if there are unforeseen circumstances of such a nature that the opposite party, according to standards of reasonableness and fairness, may not expect an unchanged continuation of the agreement. The court may change or dissolve the agreement with retroactive effect.
2. The court shall not change or dissolve the agreement as far as the unforeseen circumstances, in view of the nature of the agreement or of common opinion, should remain for account of the party who appeals to these circumstances.
3. For the purpose of this Article, a person to whom a right or obligation from the agreement has passed, is equated with an original party to that agreement.

An appeal to unforeseen circumstances only works if these circumstances are of such nature that the other party cannot reasonably expect the contractual obligations to be performed. It also has to be a circumstance that is not included the agreement. The less predictable a circumstance was, the less likely it is that it was taken into account when drawing up the contract. Nevertheless, the threshold for relying on the foreseen circumstances exception is high.

SWEDEN

The Swedish Parliament has, contrary to some other European countries, not issued any specific laws or regulations regarding contractual obligations and the COVID-19 pandemic.

In Sweden “Force Majeure” is not regulated in statutory law.

If contractual parties have agreed on a Force Majeure clause, this clause will determine whether or not a specific situation can be classified as force majeure. In order to determine if a party is relieved from responsibility for not being able to perform according to contract with reference to force majeure, it is necessary to analyze the agreed Force Majeure clause and the specific circumstances of the particular case.

It is consequently not possible to draw the conclusion that all companies affected by the COVID 19-pandemic are relieved from responsibility for not being able to fulfill their contracts.

If the contractual parties have not agreed on a Force Majeure clause, it may be possible to argue that a principle in the Swedish Sales of Goods Act should be applied by analogy. According to this principle a party may be excused for non-performance if unforeseeable events outside the party’s control are at hand. It has been debated for many years if this principle can apply by analogy and it is uncertain if this kind of argumentation would be successful in the Swedish courts.

An additional alternative would be to argue that the agreement between the parties must be adjusted since the effects and consequences of the COVID-19 Pandemic have made the agreement unreasonable. The Swedish Contract Law offers such a possibility, but it has rarely been applied in practice and this option is therefore also uncertain.

FINLAND

In Finland Force Majeure is not regulated in statutory law, but can become applicable in agency relations by analogy through Sale of Goods Act (§art. 57):

“The seller is entitled to damages for losses that he suffers because of the buyer’s delay in payment unless the buyer proves that the delay was due to a provision of law, general interruption of communications or payment services or to other similar impediment which the buyer could not reasonably be expected to have taken into account at the time of the conclusion of the contract and whose consequences he could not reasonably have avoided or overcome.”

The principle described herein can also be invoked by the seller in case COVID 19-pandemic, however, since there is hardly any jurisprudence with this respect it is difficult to estimate the outcome. It will be decided on case by case basis, which events lead to the right of invoking article 57 and how long is the duration of such an event. A travel ban could be construed as an obstacle, which an agent cannot reasonably overcome. For example totally unexpected cargo flight cancellations can lead to delays without the obligation to pay damage compensations.

If contractual parties have agreed on a Force Majeure clause, this clause will define the scale and scope of force majeure. Freedom contract prevails.  In order to determine if a party is relieved from responsibility for not being able to perform according to contract with reference to force majeure, it is necessary to analyze the agreed wording of the force majeure clause and the specific circumstances of the particular case.

Since COVID 19-Pandemic has lead for example to travel bans and fix term changes in mandatory employment laws in Finland, our courts could likely see the current situation so drastic that Force Majeure clauses could be successfully invoked.

USA

Force Majeure contractual clauses are usually couched in terms of defenses or excuses from performance of a contract upon the happening of certain events. Since such clauses are contractually negotiated ,although most are “boiler plate”(that is, standard and usual),  they are either very general or to some degree specific in enumerating what are to be considered events of Force Majeure, but it is difficult that  many have anticipated the extent of the current Pandemic.

Some clauses may include a list of specific events that are not anticipated or foreseeable and that are also beyond the control of the contracting parties so that one might reasonably expect that a global health event like the Coronavirus would be considered to be a Force Majeure event under such similar provisions.

However, if there is no such clause or other general language mentioning as a Force Majeure event such as acts of God, national emergencies, future laws or regulations or other similar language, it might never the less be asserted that such event is something that makes the contract impossible to perform, under rules of equity. These clauses are always subject to the interpretation of the courts unless their language is specific enough to have foreseen the impediment that may be before the parties.

There can be specific statutes or codes in each of the 50 states that enumerate what would be deemed a Force Majeure event therein, but it would be necessary to know the state in which enforcement of such a clause is being sought in order to determine the language that would control.

INTERNATIONAL LAW

It has already been emphasized that there are no European regulations or international conventions governing such issues with regard to agency and distribution contracts.

Support may be provided by the Vienna Convention of 1980 and by the UNIDROIT principles, which, however, do not apply either to agency contracts or to distribution contracts, but rather only to the distributor’s purchase orders or any subsequent sales unless their applicability has been explicitly excluded.

For example, think of the distributor who has already sold goods that the principal has undertaken to deliver to him, but which have not yet arrived due to the restrictions imposed by the Pandemic.

The 1980 Vienna Convention on Contracts for the International Sale of Goods (CISG) contains a provision (Art. 79) according to which failure to perform a contractual obligation is not a source of liability if caused by an impediment (Force Majeure) beyond the debtor’s control, which was not foreseeable at the time the contract was signed.

More generally, the principles of international trade (UNIDROIT) provide (Art. 6.2.2.) that if an unforeseeable and uncontrollable event alters the fundamental balance of the contract (either by reducing the value of the performance or increasing its cost), the disadvantaged party has the right to ask the other party to renegotiate the terms of the contract and, in the alternative, to ask for the termination the contract.