The world is under the spell of COVID-19 and the resulting humanitarian and economic crisis. The stock exchanges are deep in the red and a worldwide economic recession seems to be in sight. Imports and exports have been restricted by governments, bankruptcies are imminent, and many employees are at home – either working from home or out of work.
Situation in the Dutch Caribbean
The governments of the countries of the Caribbean part of the Kingdom have taken a number of measures with far-reaching consequences. Particularly the almost complete stop of air and shipping traffic around the islands and the closing of non-essential businesses and organizations disrupt everyday life. Tourism and the hospitality industry are important pillars of the economy for the Caribbean parts of the Kingdom. Because of the travel restrictions imposed globally and the call for social distancing, these sectors are among those hit hardest by the corona crisis.
Performance of agreements
Many entrepreneurs and private individuals currently encounter difficulties in the performance of their agreements. Due to the corona crisis, certain obligations pursuant to, for instance, purchase agreements, lease agreements, distribution agreements, or loan agreements cannot be met – or not in time. Some banks on our islands have meanwhile given their clients several months of delay with regard to the monthly obligations of redemption and interest payment. But not all creditors have the financial means or willingness to accommodate their debtors in a similar way.
Usually, breach in the performance leads to default, creating a statutory obligation to pay compensation. However, when the breach is directly related to the corona crisis, the debtor may be able to invoke force majeure or unforeseen circumstances.
Force majeure
Force majeure relates to a situation in which the debtor cannot be blamed for a breach. Breaches may not be attributed to the debtor if they are not its fault and if the debtor is not otherwise accountable by law, legal act or according to generally accepted standards. The threshold for successfully invoking force majeure is high. In the current circumstances, this will generally be the case only if government measures relating to the corona crisis make it factually impossible for the debtor to perform as contractually agreed.
If force majeure is assumed, there is no default and the creditor is not entitled to compensation on account of breach by the debtor. As claiming performance will not produce results, the creditor might consider full or partial dissolution of the agreement.
Unforeseen circumstances
If invoking force majeure is not possible given the circumstances, another legal instrument may provide relief. The law stipulates that the court may modify the effects of a contract or that it may set the contract aside, in whole or in part, on the basis of unforeseen circumstances of such a nature that maintaining the contract in unmodified form would lead to an unreasonable result. This ensues from the requirements of reasonableness and fairness that play an important role in contract law. As the corona crisis was not foreseeable for the average entrepreneur, it may provide relief for agreements entered into before the outbreak of the corona crisis.
Clearly, the arrangements that parties have made in the agreement and the circumstances of the case are relevant. Going to court will only be necessary if parties do not reach a solution when renegotiating the terms of the contract. Similar to force majeure assessments, the court will observe reticence with regard to intervening in the contractual legal relationship between parties due to unforeseen circumstances.
More information
If you want more information on this topic, please contact Tjarda Tazelaar or Ruthnialys Mogen or send an e-mail to coronahelpdesk@vaneps.com.
