If performance of an obligation becomes permanently impossible due to a Force Majeure event, the obligation is deemed extinguished and the debtor is exonerated. The debtor must return any consideration already received from the creditor on the basis of the statutory provisions on unjust enrichment and loses its counterclaim against the creditor to the extent it has not yet been satisfied (Article 373, paragraph 1 Civil Obligations Act).
Note that a temporary inability to fulfil an obligation does not, as a rule, abrogate the obligation to fulfil, but it may lead to an expiration of that obligation depending on its duration and the interest and expectations of the contractual parties.
The debtor will be relieved of liability for damage if he proves that he was unable to fulfil his obligation or that he was late in fulfilling his obligation due to such circumstances (Article 343 Civil Obligations Act).
Besides that, debtor should notify the other party timely on the inability to fulfil its obligation, otherwise it could be liable for damages occurred due to missed or late notification (Article 348 Civil Obligations Act).
On the other hand, if the circumstances did not disable fulfilment but made fulfilment of the obligation significantly more difficult or would cause loss to one contracting party, that contracting party may require modification of the contract or even termination (Article 369 Civil Obligations Act).
Having said that, it is important to clarify that the COVID-19 itself does necessarily qualify as a Force Majeure. In the context of trade agreements, rather the circumstances caused by the COVID-19 may qualify as Force Majeure. By way of example, such circumstances may be:
- an involuntary temporary closure of manufacturing facilities;
- temporary export restrictions; or
- transport interruptions