The role of force majeure in the COVID-19 Pandemic in Spain
The COVID-19 Pandemic is creating a global health emergency as it has spread rapidly throughout the world in recent weeks. It is an unprecedented health crisis that is gradually causing a crisis in the country's economy and in the well-being of all Spanish citizens.
The closure of educational centres, the prohibition of flights, the suspension of public events and the recent closure of the country’s borders is having a direct impact on tourism, transportation, education and culture, and as a result, the Government has been forced to enact various legal provisions to respond to the current emergency situation.
So, in this situation, it is necessary to portray some of the concepts that are taking place these days.
The declaration of the state of Alarm
The declaration of the state of alarm is the exclusive competence of the Government and is carried out through a Decree agreed in the Council of Ministers. This Decree must determine the territorial range of the state of alarm, its effects and its duration, which cannot exceed fifteen days. On March 14th, 2020, the Spanish Government approved the Real Decreto 463/2020, of March 14th, (RD 463/2020) declaring the state of alarm in order to manage the health crisis situation caused by COVID-19 and the 22nd of March the Government extended this state of alarm until the 11th of April. The extension of the state of alarm requires the express authorization of the Congress of Deputies, which, in this case, can establish the scope and conditions in force during said extension (arts. 116.2 of the Spanish Constitution and 6 of the LO 4/1981, of June 1st, and Constitutional Court Judgement 83/2016, of April 28th).
The RD 463/2020, of March 14th, limits the right to freedom of movement of people. It is only allowed to circulate on public streets to: acquire food, pharmaceutical products and consumer staples; go to health centres; commute to the workplace; assist and care for the elderly, minors, dependents, disabled or vulnerable people; and go to financial and insurance entities (art. 7.1 RD 463/2020, of March 14th).
The article 1101 of the Spanish Civil Code regulates contractual civil liability, article 1105 establishes force majeure as an exemption from liability and art. 1124 the resolution of bilateral obligations due to a breach by one of the parties. These articles establish an abstract legal framework that has been interpreted by jurisprudence in order to apply it to specific cases.
Contractual civil liability (art. 1101 of the Civil Code) is the obligation of the party that has breached a contract to compensate the party that has suffered a damage due to said breach.
However, the contracting parties are not liable for those breaches caused by force majeure. Force majeure is an unpredictable event or that, foreseen, is inevitable (art. 1105 Civil Code).
The Spanish Supreme Court has defined the concepts of unpredictability and inevitability.
In the Judgment of April 6th, 1987, it establishes that “[…] force majeure are events […] that are unavoidable or that require, at least, an exorbitant provision, to which nobody is obliged”. Likewise, in the Judgment of May 11th, 1983, it indicates that “[…] this unpredictability […] obviously, must be of a relative nature, and refer to the normal prevision of a diligent father of the family, without requiring a prevision that exceeds the normal faculties of the average man […] ”
Traditionally, force majeure has been associated with events from nature, such as wind or torrential rains, and with events that come from human action, such as violent acts or administrative prohibitions.
However, the situation of health emergency in which we find ourselves could also be considered a cause of force majeure.
COVID-19 has been declared a pandemic by the World Health Organization (WHO). So, in this case, the Judgment of December 10th, 2013 of the Provincial Court of Madrid (Rec. 145/2012) serves as a reference, since it recognized Swine Flu – also declared as a pandemic by the WHO - as a cause of force majeure that exonerated the contracting party from liability.
Effects on contracts
Taking into account these legal and doctrinal concepts, the probabilities that the current situation of COVID-19 could be considered a cause of force majeure are potentially high, since it is a situation that, could not be predicted or, foreseen, is inevitable.
The parties could have contemplated the forecast of force majeure in the contract or not:
In one hand, the parties can contemplate in the contract how to act in case of force majeure, and it will simply have to be executed, recording the suspension or resolution (as agreed) of the contract.
In the same way, the parties may exclude the effect of exoneration of force majeure (art. 1105 Civil Code).
In the other hand, if force majeure is not expressly agreed in the contract itself,
and always analyzing case by case, there are two ways to resolve the situation:
I.- One could resort to the action “rebus sic stantibus”.
It is an equity rule that indicates that, if the circumstances that formed the basis of the contract have changed in an extraordinary and unpredictable way during its execution, so that it has become excessively burdensome for one of the parties or the conclusion of the contract has been frustrated, it is not reasonable to require the contractor to remain subject to the contract, for which the party can ask the judge to reestablish obligations to balance them.
This clause is only applicable to long-term or successive contracts and to deferred execution, and the following circumstances must be present:
- Extraordinary alteration of the circumstances at the time of fulfilling the contract in relation to those present at the time of its conclusion.
- An exorbitant disproportion between the provisions of the contracting parties that truly collapse the contract by annihilation of the balance of benefits.
- That all this happens due to the occurrence of radically unpredictable circumstances.
II.- The other possibility is to make use of the action provided in art. 1105 Civil Code, named as “the unenforceability of contractual provisions in the face of the survived alteration of the circumstances”.
When the contract is synalagmatic – a contract in which each party to the contract is bound to provide something to the other party – and as a result of a case of force majeure it is impossible to fulfill the provision due, the parties are not liable to each other.
At the same time, the parties of the contract must return the consideration that has been paid by the other (art. 1124 Civil Code). The Supreme Court has indicated so in Judgment 744/2014, of December 22nd:
“Therefore, for whatever reason, the definitive breach […] may give rise to the contractual resolution provided for in article 1124 of the Civil Code when it comes to bilateral obligations […] Hence, even when the debtor could be exonerated of liability derived from a breach -by fortuitous event or force majeure- in any case, compliance with the sales contract would be substantially altered, with a great negative effect for the buyer that is such a notable delay in delivery, which undoubtedly must allow you to demand restitution of the part of the price paid and renounce to the delivery of the property. "
In short, it will have to be analyzed on a case-by-case basis, and contract by contract. It is clear that the declaration of the state of alarm in Spain may be alleged by one of the contracting parties as a ground of force majeure, but for it to be effectively determined as a ground of force majeure by the Spanish Courts, a thorough analysis of the characteristics must be carried out.
The characteristics of the good or service subject to the contract shall be analysed, and in particular, the exact moment when the contracting party suspends, resolves or terminates the contract, all in relation to the state of alarm, the declaration of pandemic by the WHO, or the consequences or limitations on the activity that COVID-19 will entail in the coming months.