With regard to the excusability of non-performance or delay in fulfilling a contractual obligation, it is important to consider not only whether the national emergency situation could be classified as force majeure, but also how to prove it to one’s domestic and international contractual partners.
Each specific breach must be caused by force majeure, the cause and effect relationship must be verifiable.
In China, during the initial outbreak of COVID-19, the government issued force majeure certificates to local businesses stating that there was an emergency situation in the country at that time and that the breach of contract could, therefore, be considered excusable. Lithuania, for example, has followed the same path, where businesses can ask a government agency for a certificate if it is temporarily impossible to conduct normal business in the country.
It may also happen that the foreign partners of Estonian companies require such certificates or attestations issued by government agencies to prove the emergency situation, either at the time of concluding the contract or in the event of a breach. The burden of proving an obstacle to performance generally lies with the party claiming force majeure.
The Estonian government does not issue such documents, which is why it is important, especially in the case of foreign business partners, to carefully collect evidence of what special measures the government has taken that may have affected the performance of obligations set out in the agreement.
In addition to legislation issued by the government, suppliers’ notices, explanations, evidence of labor shortages when employees have had to take a significant number of sick leaves, or evidence of other malfunctions can be used in such a situation.
In the case of agreements between Estonian companies, it may also be necessary for the party in breach of the agreement to provide the other party with as much information as possible about exactly what the obstacle was.
It is certainly important to distinguish between force majeure and the normal business risk inherent in the business and some unforeseen circumstances related to it, such as a bad season or the bankruptcy of a long-term partner. The generally poor state of the economy is, therefore, not something one can claim to prove force majeure.
It is important for the company to keep the above in mind even if the cooperation partner sends a notice of non-performance due to force majeure. In such a case, the extent to which movement restrictions, quarantine, or other measures actually affected compliance with the obligation must be assessed. In the case of a brief or laconic message, you can ask for further explanation as to what the obstacle specifically was.
Can such risks be mitigated by contract in the future?
In the case of international agreements, force majeure may be clarified separately, limiting it more narrowly or more broadly than in law. The reference to cases of force majeure may also be reasonable in order to avoid misunderstandings between the parties as to the meaning and extent of force majeure, in particular when dealing with parties from different legal systems.
This can be done, for example, in general terms, describing the elements of a contingency. On the other hand, a list of cases in which force majeure can be invoked may also be provided – for example, a large-scale epidemic or pandemic, restrictive measures by the state, a large-scale failure of information technology equipment.
An intermediate option can also be used, with both a general explanation and an open list of circumstances from which other cases of force majeure are not excluded.
In addition, the geographical location of the other party must be taken into account, as the perception of what can be considered a crippling natural disaster can vary greatly from country to country. The best solution in such a situation is to use a general description and an open list of specific cases of force majeure.
In the case of international agreements, the question also arises as to applicable law – usually, it is the domestic law of the party who drafted the contract. It is certainly easier for an Estonian entrepreneur to deliver on the basis of a contract to which Estonian law applies, as this facilitates obtaining appropriate legal assistance and understanding the contract.
In conclusion, there is no universal understanding of what constitutes force majeure. In international agreements, this should be agreed on a case-by-case basis, taking into account the geographical location, business practices, and general economic and business climate of the parties.
