COVID-19 and contractual liability in the light of a fortuitous cause:

The World Health Organization declared on March 11, 2020 that the COVID-19 coronavirus disease is a pandemic. This announcement came as a result of the sanitary conditions originated simultaneously in several countries worldwide. Noteworthy, multiple governments had been taking measures by then to protect from and contain the effects of the disease in their countries. Particularly in Venezuela, the Executive declared on March 13, 2020 an Overall Alarm Status nationwide for the purposes of adopting measures involving the protection and preservation of health of the Venezuelan population and intended to mitigate and eliminate epidemic risks in connection with the coronavirus. As of this date, other subsequent measures have been taken.  

At this juncture and, in the face of uncertainty growing in the business environment concerning the impact of COVID-19 in operations, the ability to fulfill contractually assumed obligations and, mainly, of being capable to invoke a cause legally justified for noncompliance of such obligations, it is inevitable to explore under the Venezuelan legislation what is known in the doctrine as a fortuitous cause not attributable to the parties, particularly, an event of force majeure, within the context of managing contracts with clients and providers in the current circumstances.

Firstly, reference is made to the provisions contained in article 1.271 of the Venezuelan Civil Code, which reads that “Debtor shall pay damages for non-performance or delayed performance of the obligation assumed, if there is no solid evidence that delayed or non-performance is the result of a fortuitous cause not attributable to debtor, irrespective of whether debtor failed to act in good faith” (text underlined for emphasis). It then follows that when debtor or ultimately the obligated party proves that noncompliance or alleged damage to the creditor is the result of an existing cause not attributable thereto, as it is beyond the will of debtor or the obligated party, the bond between the personal conduct and presumed damage is denatured and consequently, the debtor or obligated party is free from liability.

The aforementioned article generically alludes to a “fortuitous cause not attributable” to debtor, however, it is worth noting that such causes may be of a different nature and treatment as the fortuitous case is the genre, and its species: an event of force majeure, a “sovereign act” (fait du prince), an act of third parties and an act of the creditor.    

Since reference will be made at this time specifically to an event of force majeure, it is vital to note that article 1.272 of the Civil Code sets forth that “Debtor shall not pay damages if as a result of an act of God or an event of force majeure debtor has failed to fulfill the obligation as assumed or has carried out what has been prohibited” (text underlined for emphasis), it is therefore deducted that an event of force majeure takes shape in the presence of an unforeseeable, irresistible and unintentional circumstance, absolutely preventing debtor from complying with the obligation agreed upon by contract.

Consequently, by relating the notion of force majeure with the impossibility of fulfilling an obligation assumed according to a contract and expecting it to be considered as a exonerating circumstance of liability for the debtor, the following requisites must definitely concur:

1. The existence of an event or occurrence independent of the will of debtor.
2. The impossibility of attributing such an event or occurrence to debtor.
3. The unforeseeable nature of the event or, if foreseeable, the inability to avoid it.
4. A direct relation between the event or occurrence with the subsequent damage caused by it and, the absence of intent or fault from debtor in the damage caused.

Based on the foregoing, it is important that in the process of determining whether an event of force majeure is present within the context of managing contracts, an assessment is made on a case by case basis. This is a prerequisite. An assessment on the terms agreed upon will provide elements for the analysis intended to determining whether debtor is actually in a position of complete failure to comply with the obligations established by contract, due to an event of force majeure or another event categorized differently as a fortuitous cause not attributable to debtor or delayed performance under the circumstances, in which case, debtor could fulfill the obligation with tardiness. 

Applying the notion of a fortuitous cause not attributable, especially of an event of force majeure to contracts entered with clients and providers, must come after analyzing the circumstances under which the contract must be executed, i.e.; the manner how debtor will comply with the stipulations agreed upon in order to identify effectively if the obligations can be undertaken in the light of the current circumstances. Hence, examining the position of the debtor in terms of the capacity to comply and the creditor’s capability of benefiting from contract compliance is valuable. 

Similarly, assessing the necessity to rethink the agreements reached so they may be carried out once the initial conditions provided for at the time of contracting are present again becomes paramount. Thus, is fundamental to review the contract stipulations regarding the notices to be made by the parties, the procedures to be undertaken for the purposes of amending the contract or drafting any addenda as it may be applicable and, generally, any provisions associated with new decisions or agreements arising out of the present limitations which could be excluded from an event of force majeure.

Although the factual situations originated from the COVID-19 coronavirus and the measures taken by decree and other legal and sublegal instruments in Venezuela could configure limitations which jointly considered aim concurrently towards the aforementioned force majeure requisites, is recommendable to put into effect management practices for communicating and formally notifying the stakeholders, as well as to get hold of specialized legal counselling on contractual matters in order to determine in each case that an event of force majeure can effectively be invoked and proved by debtor as an exonerating circumstance of liability in light of the noncompliance of the stipulations agreed upon.

In any case, the prevailing idea within the context of business continuity is to avoid damages resulting from the inability to comply with the obligations assumed at a certain time, hence the importance of reviewing fundamental legal notions, of activating communication mechanisms between the parties and to remedy any situations for the execution of contracts as far as possible.

As the COVID-19 coronavirus is a global situation and measures taken by governments in several countries have different scopes for companies and international contracts, the application of measures or legal concepts is determined for a specific jurisdiction since the contents, interpretation and application of the notion of force majeure, in spite of common existing similarities, may be construed differently in connection with a precise regulatory framework or scope established by the contracting clause signed by the parties.

Reaffirming the recommendation on a case by case assessment, bear in mind that depending on the economic sector involved there may be contracts requiring analysis in conjunction with other contracts and not independently. For example, invoking an event of force majeure, if applicable, in connection with contracts for the supply chain of consumption goods and finished products, telecom services or engineering and constructions projects (by no means exhaustively), where multiple parties engage in the execution of multiple intertwined obligations for compliance thereof, will not depend on a single contract, but perhaps on a master agreement or one actually affected by the measures issued for the purposes of attending to the COVID-19 coronavirus situation. It may also depend on the regulatory framework applicable to the contract in question, nonetheless, it may not be necessarily the local law.

Similarly, note whether the standardized contracts under review contain equally standardized force majeure clauses which could activate the application of other provisions established in the contract in question or relating to late compliance, resolution or termination mechanisms in the event that the cause leading to the impossibility of complying with the contract remains over time.

Because of this, recommendations from the legal and management point of view aim at the analysis of particular legal situations, effective communication and notification processes of clients and providers and consulting with experts on contractual matters.

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