Last Updated on 25 March 2020
Pursuant to the Croatian law, in order for the event to be deemed as force majeure, it is supposed to be an external, unpredictable, atypical and unrecoverable event. Although the COVID-19 outbreak definitely represents a global health risk, it may not always be clear how it affects the rights and obligations of affected contractual parties in light of force majeure.
As the law does not give explicit examples of force majeure, the parties usually define by agreement what would be deemed as force majeure (e.g. fire, earthquake, other natural disasters, war, terrorist attack, general strike, etc.). If the parties agreed by the agreement that the epidemic/pandemic will be deemed as force majeure due to which the agreement may be amended or terminated, there should be no doubts. But in any other case, the contracting party would have to thoroughly assess whether the effects of the COVID-19 outbreak meet the criteria prescribed by law for force majeure, as explained hereafter.
As already stated, if the agreement does not contain any provision which enables the contracting party to request amendment or termination of the agreement due to the current situation, it is possible to seek amendment or termination on the basis of the Civil Obligations Act. To exercise this right, it is important that (i) the obligation has not yet become due and that (ii) meeting the obligations under the agreement has become too burdensome or would result in an extensive loss for such party. The contracting party claiming so would have to notify the other party of such an event without delay. The other party could potentially deny it, so the whole case could even end up in court. If the court indeed declares that the agreement is terminated, at other party’s request, the court may oblige the party who invoked force majeure to compensate the other party with rightful compensation. The agreement, however, would not be terminated if the other party offers or agrees to amend the disputable provisions.
There is also a possibility that, due to the COVID-19 outbreak, the contracting party is not able to meet an obligation already due. The Croatian law offers a solution even in that case. The contractual party would not be liable for non-performance of its obligation if it proves that non-performance was caused by circumstances that could be described as force majeure and which occurred after the conclusion of the agreement. Furthermore, it is essential that such circumstances cannot be prevented, eliminated or avoided. In such a case, the obligation of the other contracting party would also cease and the agreement would be terminated. However, if the other contracting party already paid or fulfilled other obligations under such agreement, it would have the right to seek the return of paid amount or other subjects of its obligation in accordance with the rules for unjust enrichment.
Therefore, the question of whether COVID-19 will be considered as force majeure or not under the contractual relationships to which the Croatian law applies does not have a straightforward answer. In certain cases, the authorities declare that certain situation (such as this one) is considered as force majeure, which makes affected parties’ position much easier. Although the Croatian Employer’s Association and a number of Croatian entrepreneurs already requested the overall declaration of force majeure, there are still no public reactions to such a proposal from the competent authorities. Therefore, we suggest that, before taking any steps in the sense of force majeure, the legal position should be carefully analysed taking into consideration the specifics of each particular case.