The chaotic turn of events ignited by the outbreak of COVID-19 has raised issues concerning the effect of the epidemics to contractual performance of the parties. Can COVID-19 act as grounds for relieving the defaulting party from damage claims?
Diligent drafting of commercial contracts requires special attention to the cases of force majeure. Serbian contracts’ law allows for the parties to regulate the liability in case of default. Therefore, precise definition of cases of force majeure and mechanisms for solving issues re force majeure is crucial. Otherwise, the solution given in the law would apply. What is the stand of Serbian law so far?
The Serbian case law has given force majeure a narrow spectrum, mostly dismissing claims or defending arguments based on force majeure. A party calling upon force majeure would have to bring a full set of evidence showing that it was lawfully prevented from performing the contract under force majeure. Simply calling upon 2008’ financial crisis was easily dismissed as an argument for default. Let’s add to that the unpredictability of Serbian case law, which frequently swings from one stand to another. For now, it’s too early to say about the stand of Serbian courts concerning the COVID-19 outbreak.
Having these facts in mind, in case of a lawsuit presented in front of a Serbian court, COVID-19 per se could not be interpreted as force majeure, even if the case of epidemics has been explicitly stated in the contract as force majeure. Party calling upon COVID-19 as reasons for its default would have to prove a clear and direct link between the epidemics and its default. Also, let’s not forget that the outbreak caused a state of emergency declared by the government. Facts which do play a role would include, but not limited to, the following:
- How specific is the obligation which the party failed to perform due to COVID-19 i.e. the degree of interchangeability of the subject of the performance (for example, whether the contracted goods/services could have been replaced with interchangeable goods/services satisfactory to contractual needs or the buyer requested only specific kind of goods/services which are not replaceable, at least within the performance period; or the performance could have been done by a third party on behalf of the defaulting contracting party)
- Has the party shown professional diligence as required under the law?
- Has the declared state of emergency clearly affected the performance and to what extent?
At this moment, supply of goods and services across the sectors is differently affected by COVID-19 and the declared state of emergency, depending on the specifics of the goods/services in question and the situation is changing rapidly, on daily basis. Therefore, we advise the clients to carefully monitor the situation and keep a tight liaise with us, in order to determine, to the maximum extent possible and without prejudice to a potential court decision, whether the case is one of force majeure or not, irrespective of the contract clauses on force majeure.
