Does the coronavirus crisis allow me to rely on ‘hardship’ towards private contract parties? (Altius)
Publication date: 12/03/2020
The coronavirus crisis could make the ability of a business to perform pending contracts harder. Even though so-called ‘hardship’ clauses are perfectly valid and enforceable under Belgian law, hardship is not generally accepted as a principle of Belgian contract law. Until the rules on obligations of the new Civil Code, which recognise hardship, enter into force, there are exceptions and creative ways to deal with this problem.
Hardship is the situation in which one party to a contract is, after entering into the agreement, faced with abnormal and reasonably unforeseeable circumstances (not attributable to the fault of either party) that make the party’s performance of the agreement excessively onerous and so significantly disrupts the balance between the parties’ obligations. Examples could be a profound and lasting economic crisis or the sudden and significant increase of prices on the supply side. The coronavirus crisis can clearly result in such situations.
In many jurisdictions, a party in such a situation would be entitled to renegotiate and/or request the court to resolve or change the contract. However, this is not so under Belgian law. Except for some specific legislation (e.g. on public procurement, on some lease agreements or in the context of the Vienna Convention on the International Sale of Goods) and unless otherwise agreed between the parties, Belgian law does not recognise hardship and will hold the parties to their contract.
However, this has not prevented the courts from alleviating the debtor’s situation in hardship cases. One way for the courts is to prevent the creditor from abusing its right to enforce the contract in a situation where the contractual balance has been significantly disturbed due to a considerable change in market conditions. One example is where the enforcement of the contract would ruin the debtor. Based on the prohibition of abuse of right principle, the courts could reduce the creditor’s right to the level of the normal exercise of such a right or award damages.
Another way for the courts might be to broadly interpret the notion of force majeure. Whereas, in principle, force majeure is supposed to make it absolutely impossible for a party to perform a contract, it has in certain cases been accepted that this condition could be broadened to any situation making the performance of a contract “reasonably impossible”.
Finally, all parties should not forget that, in any event, they are free to renegotiate a contract at any point in time. Even though this might prove difficult at the moment, it seems better to reach out and contact partners rather than to hide.
The above information is merely intended as comment on relevant issues of Belgian law and is not intended as legal advice. Before taking action or relying on the comments and the information given, please seek specific advice on the matters that are of concern to you.