In the past few years, there has been an increasing trend of including “force majeure” clauses in international contracts. The main objective of such clauses is to safeguard the parties’ interests in situations where fulfilling contractual obligations becomes impossible or significantly challenging due to unforeseeable and exceptional circumstances.
These clauses have also appeared in contracts before, but it was the coronavirus pandemic and the war in Ukraine that recently made it necessary to use legal mechanisms that had not had such a strong practical meaning so far. During that time, business owners were able to witness the significant effect that unforeseen and exceptional circumstances can have on the ability to fulfill contracts without interruption.
As it is for the pandemic the world is slowly returning to normality, and there is much less talking about coronavirus cases, many entrepreneurs still feel the severe effects caused by the pandemic, including: disruptions in supply chains, lack of availability of materials or lack of components.
Meanwhile, the world’s attention is drawn to the war in Ukraine, which calls into question the functioning of many branches of the economy. It should be remembered that even such basic obligations arising from contracts, as paying the contractor the remuneration may turn out to be impossible to perform or significantly hindered when international payment systems are blocked. The provisions of international and domestic legal acts concerning the introduction of certain types of sanctions, which prevent the performance of some of the existing contractual obligations, are also important.
All these circumstances mean that it is worth considering the regulation of cases of force majeure in the contract and the procedure of the parties in this type of situation. It is particular important in case of agreements under which there is an international supply of goods or provision of services in the territory of another country. Any disruption in the performance of such contracts may result in serious sanctions, e.g. in the form of contractual penalties, withdrawal from the contract or its termination.
The concept of force majeure has not been defined in the provisions of applicable law, however, the practice of trading allows to define circumstances that may be considered as cases of force majeure in contracts.
Events characterized by three features are considered force majeure:
The manifestations of force majeure include: catastrophic phenomena caused by the forces of nature, e.g. floods, hurricanes, earthquakes, forest fires. Acts of public authority and social or political phenomena of catastrophic scale are also treated as force majeure[1].
Entrepreneurs have the option to specify in the contract what they consider to be a case of force majeure.
3.1. Circumstances considered as force majeure
An agreement in the international trade should regulate the concept of force majeure and clearly indicate the cases connected with it. The absence of specific rules and regulations regarding the stated area can create substantial uncertainty and ambiguity during the execution of the contract. Typically, if one party has not been impacted by a force majeure event, they will aim to proceed with the agreement and dispute the opposing party’s claim of an obstacle to contract fulfillment. Conversely, if a force majeure event has affected one party, they will often seek to be absolved of their contractual duties.
3.2. How the parties should proceed in case of force majeure
The responsibility for deciding how force majeure affects contract performance is left to parties. This means they must address the following matters:
3.3. Information obligation of the parties
While introducing regulations connected with the concept and effects of force majeure, it is also worth taking care of the information obligation.
Exampe: Let’s imagine a situation where two parties have entered into a contract for the construction, transportation, and installation of carpentry in a shopping mall, with a completion deadline of May 15th, 2020. On the planned delivery date, the Contractor informs the Ordering Party that due to a force majeure event, specifically the coronavirus epidemic, the contract could not be executed on time. Although the Ordering Party had not been previously informed of any potential delay, the Contractor’s reliance on the coronavirus outbreak and associated restrictions would not be sufficient to justify the breach of contract. Such an unfortunate situation could have been avoided if the parties had displayed good faith by disclosing all relevant circumstances. If the Contractor had informed the Ordering Party in advance, the latter could have taken appropriate measures to mitigate or alleviate the consequences of the delay.
The core of the information obligation should therefore lead to inform the other party immediately about the occurrence of the event constituting a case of force majeure, the circumstances of this event, the estimated time of its occurrence and the proposed course of action. The parties should also contractually determine whether the occurrence of force majeure needs to be documented. While in case of a coronavirus epidemic it is unlikely that a foreign contractor would not be aware of its occurrence, in case of events related to the operation of public authority in a given country, an entrepreneur based in another country may not be aware of such difficulties at all.
Undoubtedly, the events of recent years have increased the awareness of entrepreneurs in terms of introducing contractual provisions regarding the occurrence of extraordinary situations, unforeseeable at the time of concluding the contract. As with many other contractual provisions, these are also intended to remove the parties’ uncertainty about how to proceed in a particular case.
Joanna Lubecka
attorney
[1] Judgment of the Court of Appeal in Lublin, November 19th, 2019, file ref: III APa 15/19.
However, when there is a dispute in the court, the basic practical difficulty leads to answering the question - where will such a dispute take place. In the contractor country or abroad? Can it be secured somehow?
One of the most important points that needs to be clarified in a B2B contract concluded with a foreign contractor are the terms of payment of the agreed remuneration. Payment after delivery of the subject of the contract or prepayment? And if so, what should be its amount? Which solution to choose? Read below.
Regardless of the form in which the agreement with a foreign partner is concluded, it is important that the parties agree on the most crucial elements of the contract. Incorporating these clauses will enable the parties to execute the contract in a transparent manner, without any ambiguity or uncertainties.
When force majeure events occur in international trade contracts, significant problems may arise in the process of its performance. However, including appropriate clauses in the contract that address such issues can help to manage the situation in a controlled and orderly manner.
As it is for the pandemic the world is slowly returning to normality, and there is much less talking about coronavirus cases, many entrepreneurs still feel the severe effects caused by the pandemic, including: disruptions in supply chains, lack of availability of materials or lack of components.
Case study. Check what Adam forgot when negotiating a contract with a foreign contractor
Although the indicated issues should be clearly regulated in each contract on the basis of which the guarantee is granted, in the case of foreign deliveries they are particularly important.
Below you will find some useful information on how to negotiate contracts concluded with a foreign business partner.
The purpose of the NDA is to secure the confidential nature of information that is provided to the other party in connection with the commencement of negotiations, determining the terms of possible cooperation between the parties, the concluded contract, cooperation or employment.
The standard practice is to start reading each document from the beginning. In the case of B2B contracts concluded with a foreign contractor, it is worth reversing this order.