If you are entrepreneur or manager, navigating your company through the COVID-19 challenge, you probably are considering whether and how you can invoke the force majeure clause in your contracts if in the coming weeks or months your company defaults on its obligations towards clients and partners because of the COVID-19 restrictions.
In brief, here is what you should consider:
- Could not have been predicted and provided for when you entered the agreement;
- Cannot be avoided with diligent efforts of the party, which suffers its impact and which, until that moment, has duly complied with its obligations;
- Has immediate and substantial negative impact on the performance of the obligations of the party.
If all of these conditions are met, then the force majeure clause will allow you to avoid the negative consequence of your default for a certain period.
The restrictions and bans imposed by the authorities against the spreading of the virus in Bulgaria, even in the context of the state of emergency declared on 13 March 2020, do not automatically entitle you to invoke the force majeure clause to suspend your performance or avoid penalties for delay.
When you need to provide evidence for force majeure, particularly when your client or partner is based abroad, you can obtain a force majeure certificate from the Bulgarian Chamber of Commerce and Industry. It can be issued in Bulgaria or in English, German and several other languages.
You should consider informing your clients and partners about the prospects of delay of or default on your obligations as soon as you have reliably assessed the impact of the restrictions and bans related to COVID-19 on your company. This approach will afford you more time to negotiate in good faith a reasonable solution that would work for both parties.
In any case when considering whether or not to invoke the force majeure clause, each default should be reviewed and assessed separately – when and why the default occurs, the applicable law under the respective agreement, the risks related to triggering the force majeure (e.g. if it would entitle your client to terminate the agreement if the restrictions related to COVID-19 are not revoked in the next two months).
In substance, the force majeure is the “emergency exit” invoked when the parties fail to negotiate another solution to mitigate the negative impact of the extraordinary circumstances. Considering the global impact of this health crisis, which exacerbates by each day, a timely and appropriately tailored legal advice and professional negotiation assistance will enable you to succeed in finding efficient solution other than force majeure.
Should you need legal advice or support with respect to impending or ongoing default or regarding how to approach invoking of the force majeure clause, you can contact us – Attorney at law Georgi Popov or Attorney at law Maria Mihaleva.