Many lines have already been written about the effect of COVID-19 in international contracts. We will be now focus on the case of an international sales contract where the Spanish law is applicable.
In general, COVID-19 could be invoked by a litigation lawyer to justify the lack of compliance of its client towards the counter party in the contract. Legally speaking, COVID-19 could be operating as either a “force majeure” or as a “hardship” (in Spanish commercial law practice known as “Rebus sic stantibus” clause) circumstance and not necessarily as either one of them.
Going back to the case where an international sales contract is subject to Spanish law, let us consider an example. A buyer cannot open a brick-and-mortar shop to the public in Barcelona and therefore cannot sell the goods received from his French supplier in Montpellier. Due to the regulations passed by the Spanish government to cope with the pandemic, many similar types of establishments have been forced to close (“Real Decreto 463/2020”).
This circumstance was not foreseeable at the time when the contract was agreed, let us say December 2019 (“unpredictability”). And there was nothing the buyer could do to prevent it since he was not informed on either the pandemic itself, or how the government was to cope with it (“irresistibility”). In principle it was fit as a “force majeure” scenario that would allow for him to invoke it as a justification to not pay his supplier.
Let us then say the buyer could have used a special packaging to preserve the goods. The goods would have remained fresh and could be sold once the restrictions on the brick-and-mortar shop would be lifted. However, this special packaging would have raised the price at such an excessive amount that that the business would have been completely ruined. Again, in principle, he could have called for the “hardship” or “Rebus sic stantibus” clause to not pay and not being held liable for it.
In both circumstances I have mentioned “in principle” on purpose, since in practice we need to look at the doctrine of Spanish courts to check if it would pass. And the answer is negative. There are several judgments from higher courts to this regard, but I will refer to the Supreme Court in the Sentence number 820/2013, dated January 17, 2013, since it covers both options:
- With regards “force majeure”, it is established that such justification is only applicable the type of obligations consisting of doing something (“obligaciones de hacer”) or deliver something (“obligaciones de dar”), referring to services and sales contracts. But not to the obligation to pay for something, even if technically speaking and obligation to pay would fall under the first category. Since the main obligation of the buyer is to pay, the fact that COVID-19 regulation forced him to close the shop would not be a valid justification not to pay.
- With regards “hardship” or “Rebus sic stantibus” clause, it states that it is only applicable to those contracts it which the obligation is performed in several milestones during a certain period of time (“tracto sucesivo”). Therefore, it does not apply to this case, since as a sale contract, the obligation to deliver is performed a single time (“tracto único”).
One thing is for sure, and that is that a variety of cases may emerge while court regulations on COVID-19 are still not precisely defined. Each case will have to be assessed individually to determine how COVID-19 will affect each particular contract.
Would you like to have more information? Or are you curious to know how force majeure or hardship may affect your international contracts during COVID-19? Contact us now. Our lawyers at the Spanish desk would be more than happy to help you.
Author: Antonio Illán Box