What are the criteria to consider when evaluating the Coronavirus as a Force Majeure or Hardship?
To decide whether the Coronavirus crisis is a force majeure or a hardship event, we have to take into consideration whether there is a clause in the contract in question which mentions “epidemic” as a case of force majeure or not?
If the answer is yes, then the parties’ agreement shall prevail as article 147 para. 1 ECC provides, literally, the following:
“The contract makes the law of the parties. It can be revoked or altered only by mutual consent of the parties or for reasons provided for by law.”
Therefore, the parties have to adhere to such clause and follow the mechanism provided in such clause.
If the answer is no, then you should consider the following criteria.
To what extent have you suffered from the Coronavirus epidemic. Is it to the extent that the contract in question is no longer enforceable? If the answer is yes, then the contract execution will be subject to the force majeure theory whereby the obligation of the parties to execute the contract and achieve the contract purpose become impossible and not just onerous. As a result, the debtor may be relieved from its obligation entirely or the parties could agree to postpone the execution of the contract until the end of the force majeure event.
Has the execution of the parties’ obligations become onerous but not impossible? If this is the case, then according to Article 147 para. 2 ECC, which regulates hardship, the judge upon the application of the debtor may reduce to reasonable limits, the obligation that has become excessive. The parties also can reach to an agreement to postpone the execution of the contract or to extend the duration of the contract to get over this hardship, provided that they are not in contradiction to Article 147 para. 2 ECC by burdening the debtor with more than the law requires.
The main difference between “force majeure” and “hardship” is the case of the latter, the fulfilment of the contract is still possible but leads to burdensome disadvantages for the party in breach of contract. In contrast, a “force majeure” event makes the fulfilment of the contract completely impossible, whereby the “objective impossibility” is the decisive factor here. For instance, the Coronavirus may be considered as a force majeure event for airlines and travel agents, because air traffic all over the Egyptian airports continue to be suspended until the end of the pandemic, but hardship may be considered for construction companies.
At the end, whether the coronavirus crisis shall be considered as force majeure or hardship event or not, will be decided on a case by case basis by the courts. In typical cases, debtor may allege force majeure or hardship while creditor shall deny that the event is a force majeure or a hardship.