The Coronavirus (COVID-19) And Force Majeure

With the emergence of the novel coronavirus (COVID-19) which the World Health Organization declared it to be a pandemic on 11 March 2020, the challenges to businesses and individuals are quickly growing due to various factors such as travel restrictions and government issued curfews. As the business world tries to navigate the challenges brought on by the rapid spread of the Coronavirus, it is now more essential than ever to have quick business solutions in order for this situation to make the least amount of damage to both the global economy and businesses as well as individuals.

Beyond the obvious repercussions to health, the pandemic has presented major issues within the business sector as many markets require the free movement of people and goods. Whilst the main impacts happened within Mainland China the commercial repercussions is set to have global effect. Some specific sectors such as tourism, retail and logistics etc. have already been affected with interruptions to supply chains due to severe port checks, implications under funding arrangements challenges in meeting contractual obligations with expensive consequences and challenging logistical implications.

Much like the Council of Europe and the World Trade Organization to prevent the spread of coronavirus, many international organizations and universities have canceled their meetings and events. Travel restrictions and quarantine measures have been introduced. Companies are especially suffering due to problems in their supply chain and production stages. Therefore, businesses may be finding it difficult to perform certain contractual obligations. Since every country has their own legal system and their own way of solving contractual issues, the case-by-case approach to these issues will be the best route as issues arising out of the Coronavirus may fall under force majeure in one country while it may not in another. This article will focus on the global approach to force majeure with a specific focus on Turkey.

Could a Pandemic be considered as Force Majeure?

In order to analyze the legal aspect of the issue we must first understand the term “Pandemic” and why it is important for the legal aspect of the issue. According to the World Health Organization, a pandemic is declared when a new disease for which people does not have immunity spreads around the world beyond expectations.

It is important to note however that the relevant force majeure event isn’t necessarily the pandemic, in this regard the Coronavirus, itself but the consequences of the virus and its impact upon the ability of the affected party to fulfill its contractual obligations. The party must establish the causal link between the event and its inability to perform. A disruption that simply impacts the profitability of a contract or simply the existence of a disease may not be sufficient for a force majeure claim unless there is express contractual provision for such a situation.

The ability of the parties to fulfill the obligations can be affected due to different factors which may also include force majeure. The event of force majeure may be defined in a contract but this may differ according to the parties wishes therefore, force majeure provisions may include additional requirements, such as the length of time that the pandemic event must last, or when, in relation to your contract performance, the declaration of a pandemic must be. For these reasons each contract and situation must be analyzed individually. It is also of importance to check the notice provisions of any force majeure clause to make sure whether a notice is required. This also varies from contract to contract and requires individual analysis.

The applicable law may also be determined by the contract and if so, in the event of force majeure not being defined within the contract the parties will then have to look at the relevant legal provisions. So for a concrete definition of force majeure we must first look at the applicable law. In countries like the UK where the system is case law based rather than written laws, the clauses of the contract becomes the law for the signatory parties. The UK common law has no general concept of force majeure except for the doctrine of contractual frustration.

A party’s ability to claim relief for a force majeure event therefore depends upon the terms of the contract and in particular the force majeure provision. If such provision does not exist, they will then have to turn to the doctrine of contractual frustration which states that the aim of the agreement is no longer possible to achieve, or, in other words, where one party is prevented from, or unable to, carry out their obligations under the contract due to a supervening event beyond their control. The doctrine of frustration results in the contract automatically coming to an end and the parties will no longer be bound to perform their future obligations. For this reason, the threshold for proving frustration is much higher than that for most force majeure provisions. If the situation fails to fall under frustration then the parties shall have no other option than to fulfill their obligations and in failing to do so, pay due compensation. For those who entered into contracts before December 2019 will likely have an easier time proving frustration rather that parties who entered into contracts after the pandemic mainly because they had no reason to foresee a pandemic.

So the in order to determine whether a force majeure clause is applicable we must first adress these questions:

• The extent to which the parties regulated force majeure in their contracts,
• If adressed, the legal ramifications of such a clause within the contract,
• The extent to which the outbreak actually prevents a party from performing their contractual duties.

Force Majeure Under Turkish Law

The aforementioned scenario is for common law countries like the UK but such is not the case for civil law countries such as Turkey. If a contract includes a force majeure provision, a party can rely on the force majeure provision. If such a provision does not exist the parties can then turn to the remedies offered by the laws. Although there is no statutory definition of force majeure under Turkish law it is still covered under the principles applied to objective supervening impossibility.

Objective Supervening Impossibility, regulated under the Turkish Code Of Obligations (“TCO”) Law No.6098 Article 136 states that, “if an impossibility to perform all the obligations arise due to reasons not attributable to the obligor, the obligor shall be fully or partially released from performing the related obligations and cannot be held liable for damages.”

This means that if the party cannot fulfill their contractual obligations they may be released from the agreement but if there is a possibility for an extension to be granted or the suspension of the obligations then such a relief is more likely to be applied primarily. The Turkish Supreme Court Assembly of Civil Chambers, the highest court for civil claims, also defines force majeure as:

“…Force majeure is an unexpected event unavoidable by any means or persons that occurs outside of the activity and operation of the obligor, which leads to the violation of a general norm of behavior or debt in an absolute and inevitable manner, which cannot be foreseen and resisted. Natural disasters such as earthquakes, floods, fires and epidemics are considered as force majeure events.”

(Decision Date: 27.06.2018 No: 2017/1190 E., 2018/1259 K.)

There is also a rather detailed description of force majeure within the Public Procurement Contracts Law no 4735 and although it’s only applicable to contracts made between the government and a legal entity, it still provides an understanding into what force majeure is within Turkish law. Article 10 stipulates that the below situations are considered as a force majeure event;

a) Natural Disasters
b) Lawful Strike
c) Epidemic
d) Partial or General Mobilization
e) Other similar events determined by the Authority

Within the Turkish legal doctrine and legal decisions the existence of force majeure is expected to meet certain conditions. These conditions are as follows;

• The force majeure event is due to reasons not attributable to the party making a force majeure claim.
• The event must prevent the party/parties from fulfilling their contractual obligations,
• The party claiming force majeure must not have the opportunity to overcome this obstacle,
• The reasoning for a claim of forcemajeure is deemed as sufficient depending on the circumstances of the event in question.

Therefore, we may only call a situation as force majeure if it carries the aforementioned characteristics. With that in mind it should be noted however that whether an event constitutes force majeure or not should be decided on a case-by-case basisas it necessitates an evaluation regarding the satisfaction of its requirements. Thus, the same event may or may not be recognized as constituting force majeure depending on the case.

As per a statement made by the Ministry of Trade dated 6th March 2020, “the Coronavirus constitutes as force majeure for packet tours and consumers will be able to cancel the package tour even if it is less than 30 days away.”

This official statement further confirms that the performance contractual obligations may be impossible due to governmental practices aimed at protecting public health such as travel restrictions and that if a performance of such obligations is deemed as dangerous for human health then such a practice will constitute as force majeure.

Declaration of a State of Emergency 

When looking at the current situation of the world, countries such as Italy, Spain, The USA have all declared a State Of Emergency due to the Coronavirus outbreak. Such a case is also very likely to happen within Turkey as well. As daunting the word may be a declaration of a State Of Emergency alone will not be sufficient enough for it to be categorized as a force majeure event. Like we have explained above the situation must result in an impossibility to perform contractual obligations and for reasons are not attributable to the obligor. A State of Emergency, while a very constraining measure, will not be enough but it will be an additional useful factor when making a force majeure claim.

Some Suggestions

• Review your business contracts in order to determine whether they include a force majeure provision and the extent of which it may be applicable and the consequences of triggering such a clause.
• Make sure that the aspects of your contract which is you are not able to perform is due to the Coronavirus .
• Make sure that as a business, you are taking the necessary measures in order to avoid or reduce the effects of the Coronavirus such as adopting a remote working environment and issuing additional measures when performing contractual duties.
• If in doubt, it may be helpful to seek legal advice from professionals.

Attorney Ayça Berker & Deniz Nalbant

BERKERBERKER Law Firm

You may reach our COVID-19 Special Newsletter for a more in depth explanation and a comparison with English law here.

If you would like to know more on this matter or require legal assistance, please get in touch with BerkerBerker Law Office via info@berkerberker.com or any other contact information listed at our website www.berkerberker.com