The World Health Organization declared the coronavirus disease 2019 (COVID-19) outbreak a “Public Health Emergency of International Concern” (PHEIC). As of March 3, 2020, there have been 90,870 reported cases of COVID-19, spanning 73 countries and resulting in 3,112 deaths.
The rapid spread of the outbreak, combined with the impact of various government responses, have caused significant disruption to business on a global scale, including commercial travel, supply chains, and other commercial operations and relationships. As a result, some companies have alleged (or suggested) that the outbreak constitutes a force majeure event that may entail the suspension or cancellation of certain obligations.
How Argentine law addresses force majeure under these circumstances?
Force majeure refers to circumstances beyond the parties’ control that can render contractual performance too difficult or even impossible. Where an event conforms a force majeure scenario, the party invoking it may suspend, defer, or be released from its duties to perform, without liability. See article 955 and related ones of the Argentine Civil and Commercial Code.
Force majeure clauses in contracts typically provide a list of specific events outside of the contracting parties’ control that, upon occurrence, would excuse or delay the invoking party’s performance, or permit the cancellation of the contract, with no liability. However, as under argentine law force majeure is available in the Argentine Civil and Commercial Code, suspension or termination of a contract for this cause is available even when the contract does not include a provision in this regard.
If the parties to a contract disagree as to whether COVID-19 constitutes a force majeure event, it will ultimately be up to a court to decide if COVID-19 constitutes a force majeure event, and the parties’ rights and obligations. The application of force majeure is an issue of contract interpretation governed by the Argentine Civil and Commercial Code and the applicable legal precedents.
What steps companies should take in considering their options?
In the event of a potential force majeure event as COVID-19, companies should take proactive steps to mitigate their risk (or maximize their rights), and be prepared for a possible impact to their operations or those of their suppliers or contractual counterparties. To such end, companies could:
- Review contracts to assess the agreed force majeure events, and the rights, remedies and requirements that may apply if the force majeure event occurs. For example, some force majeure provisions require that the invoking party discloses the time period during which its performance will be delayed. Also, the clause may provide a right to source from an alternate provider, or terminate the contract for non-performance after a certain period of time.
- Obtain and retain as much information as possible about the impact that a termination based on a force majeure event may have, documenting the relevant aspects to evidence the same.
- Consider contingency plans if there is risk that the company may be impacted by COVID-19. Consider whether there are alternative means to perform/satisfy contractual obligations or proactive steps to take in anticipation of the effects of the outbreak.
- Document efforts to comply with contract terms or to find other means by which to comply.
- Manage communications with counterparties, bearing in mind the importance of global coordination of what may be local relationships to ensure a company-wide, consistent approach.
- Review and follow-up local regulatory actions and restrictions -and in the place of execution of the contracts- regarding public policies implemented in response to COVID-19, to determine the course of action to be followed in each case.