Newsroom / News / Media / Info Magazine LGP NEWS 02/2022 / Slovakian companies under the spell of force majeure

Slovakian companies under the spell of force majeure

Slovakian companies under the spell of force majeure

Whether in the context of the pandemic or the ongoing military conflict in Ukraine- the notion of “force majeure” and the related assertion of claims by the parties concerned has recently become more frequent. The impacts on the business environment in Slovakia that are associated with it are described in the article below. 

In general, force majeure – also referred to as Vis maior or Acts of God- is usually considered to be a circumstance that has occurred independently of the will of the contracting parties, is unavoidable with all diligence, and is unforeseeable with all diligence. Such a circumstance may originate in natural events (e.g. earthquakes, flood, volcanic eruption, fire, epidemic/pandemic, etc.), in the actual behaviour of people (e.g. war, sabotage, civil unrest, strike, commercial, monetary, political or other actions of public authorities, etc.) or in other unforeseeable and unavoidable events. 

Effects on commercial relations 

Ideally, the parties have a force majeure clause in the contract under which the obligor in the event of force majeure circumstances is not in default, does not bear the costs associated with such circumstances, is not liable for damages caused by such circumstances, or the obligor is entitled to withdraw from the contract if such circumstances persist for an unreasonable period of time. In the case of contracts concluded under the Slovak Commercial Code, where there is no force majeure clause and a claim for damages in respect of the debtor’s delay is imminent, the statutory ground of liberation may be invoked. Its essence lies in the fact that the obliged party will not be obliged to compensate the other party for damages if the following conditions are cumulatively fulfilled: 

  • the breach of the obligation was caused by an obstacle which occurred independently of the will of the obliged party and prevents it from fulfilling its obligation, 
  • it cannot reasonably be expected that the obligor would have averted or overcome such an obstacle or its consequences, and 
  • it cannot reasonably be assumed that the obligor would have foreseen the impediment at the time the obligation arose. 

The obliged party shall not be liable to pay damages as long as such impediment persists. However, once such impediment ceases to exist, the obligated party will have to fulfil its obligation, otherwise it will be liable to the other party for the damage caused. In this connection, it should be pointed out that this is a dispositive provision which the parties to the contract may modify at will or even exclude altogether. At the same time, this legislation deals ‘only’ with the exemption of the obliged party from the obligation to compensate for damages, but does not, for example, affect the liability of the obliged party for delay due to force majeure. 

According to Slovak law, another institute, namely the extinguishment of the obligation by defeating the purpose of the contract, is also applicable in the case of force majeure circumstances. It consists in the fact that if, after the conclusion of the contract, the essential purpose of the contract, which was explicitly expressed in the contract, is frustrated as a result of a substantial change in the circumstances in which the contract was concluded, the party affected by the frustration of the purpose of the contract may withdraw from it. However, it should be stressed that the party who withdraws from the contract for the aforementioned reason shall be liable to compensate the other party for the damage suffered by it as a result of such withdrawal. As in the previous case, the statutory provisions governing this instrument are dispositive and the parties may modify it or exclude it altogether. 

In view of the above, it can be concluded that business operators should not rely solely on the legal possibilities but should anticipate and insist on the incorporation of a force majeure clause tailored to the specific case when concluding contracts with their business partners and certainly insist on the incorporation of a force majeure clause in the contract. 

Impacts on construction projects 

Slovak legislation on the construction of buildings does not regulate force majeure or conditions related to its impact. Therefore, construction entrepreneurs are subject to general commercial law as described above. However, most major construction projects in Slovakia are based on the so-called FIDIC Red Book (FIDIC), issued by the International Federation of Consulting Engineers. FIDIC is a standardised set of provisions, rules and procedures used in the execution of construction projects, including the treatment of force majeure rights and obligations. 

In their terms, force majeure means an exceptional event or circumstance: 

  • that is beyond the control of a party, 
  • against the occurrence of which the party could not reasonably have provided for prior to the conclusion of the contract, 
  • which, after its occurrence, could not reasonably have been avoided or overcome by the party concerned; and 
  • which is not substantially attributable to the other party. 

FIDIC demonstratively states that such force majeure may be, for example, war, invasion, rebellion, terrorism, revolution, insurrection or natural disasters such as earthquake, hurricane or volcanic activity. The main thrust is that if the contractor is prevented by force majeure from performing any of its obligations under the contract and incurs delays and/or costs in connection therewith, it will be entitled to an extension of the construction period and the reimbursement of costs incurred by the contractor in this connection (only in cases exhaustively enumerated by FIDIC). 

In addition, if force majeure prevents the execution of the entire work in progress for a continuous period of 84 days, or for several recurring periods totalling more than 140 days, either party may issue a notice of termination to the other party. We consider the force majeure provision in the FIDIC conditions of contract to be sufficient and effective, especially in the current or recent period. However, a problem arises when the contracting entity (often a public entity) modifies the standard version of the FIDIC by so-called special conditions of contract during the tendering process and modifies or completely excludes a part of them. In this way, the part of the FIDIC text dealing with force majeure may also be distorted, which may make it impossible to claim a related price increase or extension of the construction period. 


AUTHORS:

JUDr. Martin Jacko, Attorney-at-Law and Managing Partner at LGP Bratislava
Mgr. Martin Holý, Attorney-at-Law at LGP Bratislava

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