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Coronavirus - Questions and answers for businesses – Estonia

  • Estonia
  • Coronavirus - Country overview

13-03-2020

 

Does the Coronavirus and measures for its prevention constitute force majeure?

Unfortunately, there is no one clear and globally valid answer as legal systems in different countries attach different meaning to the concept of “force majeure”; moreover, this concept might be widened or narrowed by contractual arrangements.

Under the Estonian law of obligations, non-performance is deemed excusable if it is caused by force majeure. “Force majeure” means a circumstance which is unforeseen and beyond the control of the party. It is essential to point out that, in the Estonian legal system, force majeure renders non-performance of a contract under the law of obligations excusable, even if this has not been expressly specified in the contract. However, one should take into account that under Estonian law, parties may agree on such force majeure provisions , where the substance of which differs from that set out by law.

It is important to bear in mind that:

■ International agreements might contain a fixed (exhaustive) list of circumstances considered to be force majeure. Generally, force majeure circumstances include, above all, various natural forces and phenomena, including earthquakes, volcano eruptions, landslides, natural disasters. Moreover, according to the general definition force majeure events are also deemed to include plague or epidemics; wars, invasion, armed conflicts; blockades; embargoes; sabotage; nationwide strikes; acts of government, etc. The present virus outbreak is an exceptional one, because it features an epidemic, as well as various governmental measures, such as quarantines, longer stays off work, transport blockades, etc.

■ International contracts of other types might merely specify criteria of a general nature which must be satisfied in order for an event to be regarded as a force majeure circumstance. For example, the circumstance has to be beyond reasonable control of a party, or could not have been reasonably foreseen.

What rights do we have when the virus - or its prevention measures - paralyse the business of our essential partner or supplier?

A party cannot rely on force majeure arbitrarily in order to justify non-performance of a contract: the force majeure circumstances have to directly disrupt the activities of the partner. Such effects include, for instance, suspension of deliveries due to the quarantine and restrictions on movement, absence of a large number of employees from work due to illness or preventive measures, or suspension of the business of the partner’s business partners and suppliers. A mere global outbreak of a disease or the fact of imposition of prevention measures do not constitute a sufficient reason for non-performance of any obligations assumed.

Having received a notice from a contractual partner stating that they are unable to duly perform their contract because of a force majeure circumstance, you should ask them to provide complete information about the force majeure circumstance or about how exactly it has affected the party.

The Law of Obligations Act allows - when a change in circumstances alters the balance of the obligations of the parties to the detriment of one of the parties - to amend the contract or, if this is not possible, withdraw from or cancel the contract.

What do we need to do if, due to the virus, our company cannot meet the assumed obligations and deadlines?

The best course of action, whenever problems arise, is to promptly notify your partners about them and to discuss them openly. This also helps your partners to be prepared for it, and thus reduce overall damages.

In case of contracts these are the aspects that should be checked first:

Which national law applies to the contracts? Different countries might apply slightly different meaning to what constitutes force majeure.

Has the contract narrowed, widened or supplemented the definition of force majeure set forth by law?

What reasonable efforts could I make to reduce damages? Due diligence and acting in good faith, but often contractual terms as well presume that parties make maximum efforts to minimise damages to the extent possible and reasonable.

Does the contract set forth any additional preconditions for application of the force majeure clause? In some cases, for instance, it might occur that in order to rely on the force majeure clause the partner has to be notified within a specified term or using specific means of communication (in writing, in a format reproducible in writing, in a (digitally) signed form, orally, etc.). Furthermore, contracts might specify that if provision of a service or performance of obligations is suspended due to force majeure circumstances for a period, exceeding a certain time limit, the contract may be terminated.

How do I prove the existence of force majeure, if necessary? The burden of proof rests with the party who wishes to rely on the force majeure clause. They need to prove that the circumstances of force majeure actually prevent performance of obligations. Therefore, companies intending to rely on circumstances of force majeure must obtain as much information about the events affecting them as possible. It is advisable to record the number of sick leave certificates, notices of suppliers and partners about problems in their business, increased work load of the remaining workforce / production capacity, official declarations of quarantine or restrictions on movement, cancelled travel and shipments of goods due to preventive measures.

Which forms of compensation for damages could affect me? In this respect it is, above all, necessary to look at the contract and establish the national law applied to it. How are any possible disputes and compensation claims settled? Which are the compensation claims that could be submitted to me, and which claims can I submit myself?

Are countries allowed to apply exceptional measures, not specified by law and contracts, to protect their own businesses?

As a rule, measures falling beyond the scope of law and contract are inconsistent with the rule-of-law principle, and in most countries the concept of force majeure has been sufficiently specified in the legislation, so generally this is not very likely to occur. However, the rise of populist governments along with the escalation of the virus outbreak make us cautious about whether this approach could be completely ruled out.

A company doing business with China should, nevertheless, take into account that China offers force majeure “shields” to Chinese companies that are unable to perform their international obligations due to the outbreak of the coronavirus, and wish to enforce on the force majeure clause. To the best of our knowledge, such certificates are not issued arbitrarily, and companies need to provide certain proof, such as evidence of delays or cancellation of transport, to benefit from such shields. However, at present it is still unclear how such certificates are consistent with the provisions regulating force majeure agreed in or applied to contracts.

At the same time, it is necessary to take into account that by now WHO has declared the coronavirus outbreak a pandemic, and many countries have closed down their educational institutions and banned any major events. Such situations can indeed be classified as force majeure. However, it is important to look at when these measures take effect, i.e. violations of contracts committed before these decisions might not fall within the category of excusable violations due to force majeure.

Eversheds Sutherland is a global law firm, and we can provide high-quality legal assistance across the world. Eversheds Sutherland has appointed contact persons in all countries who are specialised in handling business losses and conflicts arising from the coronavirus outbreak. You can find additional information about various jurisdictions on our coronavirus legal updates page.

 

For more information contact

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