Coronavirus: Impacts on Contractual Obligations under Czech Law

As briefly mentioned in our recent Legal Flash News, there are certain useful legal instruments under Czech law for handling or amending contractual obligations in the light of the Corona-Virus crisis.

The first thought usually goes to so-called force majeure clauses. But – can the Corona-Virus outbreak be considered a force majeure event? The Czech Civil Code[1] requires an extraordinary, unforeseeable and insurmountable obstacle which occurred independently of the will of a contractual party.

Further, this must be the cause, why a contractual party was temporarily or permanently prevented from fulfilling its contractual duty. Only then such party is released from the duty to provide compensation to the other or to a person that was evidently intended to benefit from the fulfilment of the respective duty. However, the use of such rule has to be carefully analysed in advance. Being in default prior to the Corona-Virus crisis excludes the application of the “force majeure” clause. Furthermore, if a party intends to conclude a contract even though it knew that measures related to the coronavirus are already in place, the coronavirus would not be considered to be an obstacle under the “force majeure” clause.

The other possible scenario might be a substantial change of circumstances causing gross disproportion in the rights and duties of the parties by disadvantaging one of the parties either by disproportionately increasing the cost of performance or disproportionately reducing the value of the subject of performance[2]. If such gross disproportion appears, the affected party may, in compliance with the Czech Civil Code, call for renegotiation of the contract. In case the parties fail to reach an agreement within a reasonable time period, each of them may then request a court to change or terminate the respective contractual obligation. In this connection, it is important to bear in mind that the court would dismiss the application, if the affected party failed to exercise the right to reopen contract negotiations within a reasonable time after it must have ascertained the change of circumstances (this time limit is presumed to be two months). It also has to prove that it could neither have reasonably expected nor affected the change, which occurred only after conclusion of the contract. Moreover, such procedure may not have been intentionally excluded by the parties[3].

It is also to be noted that Czech law releases a party from its obligations in case of impossibility of fulfilment of the obligation. Such impossibility however has to be carefully analysed – if the debt can be discharged only under more difficult conditions, at higher costs, with the help of another party or after the given period, the fulfilment may not be considered „impossible“[4].

The above describes the general legal instruments provided by the Czech Civil Code. To be sure, companies need to carefully review their contractual documentation and analyse all aspects and circumstances on a case by case basis.

[1] § 2913 of the Civil Code (Act No. 89/2012 Coll., the Civil Code, as amended).

[2] § 1765 of the Civil Code (Act No. 89/2012 Coll., the Civil Code, as amended).

[3] § 1765, 1766 of the Civil Code (Act No. 89/2012 Coll., the Civil Code, as amended).

[4] § 2006 of the Civil Code (Act No. 89/2012 Coll., Civil Code, as amended).

Mgr. Bc. Jaroslava Trojanová / Mgr. Bc. Gabriela Škvařilová

 

31.03.2020
by Mgr. Bc. Jaroslava Novotná / Mgr. Bc. Gabriela Škvařilová