The Effects of COVID-19 on International Contracts

How to handle the case in which a supplier or customer within an international supply chain defaults on a contract? When can Force Majeure be invoked? What are the consequences on contracts? How to minimize risks to the company’s business?

To answer these questions, it is necessary to analyze the content of the contracts and understand what the law applicable to the individual agreements provides for.

Our experts explain how to manage the effects of the Covid-19 pandemic on industrial and commercial activities and share operational advice for managing international contracts during the emergency.

Check out the FAQ of the country of your interest below and get in touch with our Coronavirus Helpdesk and to set up a free call if you need assistance.

Tell us how we can help

Israel

How are Force Majeure and Hardship regulated in lsrael?

In Israel, the main reference to Force Majeure is  to a contractual protection/disclaimer for non-performance of a contractual obligation due to unexpected occurrences beyond the control of contracting parties  (see for instance section 18 of the Israeli Contract Law – Remedies for Breach of Contract -1970).

However, the said doctrine although enshrined in a specific act of law, is applied in a very limited manner, rarely providing Force Majeure protection especially while dealing with cases of acts of war, terrorism, militant hostilities etc. that were usually referred to a foreseeable in Israel and thus not a justification for breach of contract, same as per extreme weather conditions unless in totally unexpected time or place or even extreme changes in prices of goods for any reason.

Nevertheless, the Coronavirus phenomenon might be referred to and dealt with differently as indeed an unexpected and unavoidable event, in cases it has in fact objectively affected the ability to perform (such as in light of binding orders by the authorities), as  provided  by the Force Majeure doctrine.

In general, the key under Israeli law – would be to review whether the matter involves:

  • Actual non-foreseeability of Coronavirus event or its possible consequences, during the contractual engagement;
  • Actual and objective inability and impossibility to perform the contract in any manner because of the Coronavirus event – or manifest unbalance of the parties’ obligations.
  • Inability to perform based on binding orders or restrictions by the authorities that objectively affected the performance of the obligation in direct manner .
  • Good/bad faith in conducting the contract during the period of the circumstances and/or Good/bad faith regarding the non-performance or demand for compensation.

Said criteria would be used also to determine and evaluate the Coronavirus as a Force Majeure or as a breach of contract or hardship that would rarely provide exemption from liability in case of non-performance.

The respective burden of proof to prove that the Coronavirus outbreak can be / cannot be deemed as an event of Force Majeure is based on the civil adversary 51% proof and persuasion doctrine, under which the party claiming exemption from liability of breach of contract based on Force Majeure would have to prove the existence of the facts which meet the above criteria, whereas the opposing party would need to rebut said arguments or prove that the obligation could have been performed or that the event  should have been known or expected.

Orders by the Ministry of Health, such as the one of 2nd February 2020 banning any gatherings over 5000 people (further on updated to any gathering of over 10 people), banning any international congresses in Israel, and ordering 14 days isolation for any arriving travelers from certain countries, might be useful to prove the existence of an event of Force Majeure, yet additional prove would be needed to  discharge the burden of proof of the objective impossibility to perform the contract.

Nevertheless, If a party to a contract has decided on his own discretion (not based on an  order of the authorities) , to refrain from performing the contract obligations, such conduct or misconduct might not grant the Force Majeure  protection.

What is the best course of action in case of notice of Force-Majeure in Israel?

Supply side: to obtain proof of the Force Majeure event and its effect upon the performance, to send a timely warning to the buyer, to take all possible measures to perform the obligation, and gather evidence of such effort to overcome the effects of the event.

Buyers side: to act in good faith to adapt the contract terms to the situation (e.g. accepting a delay of performance ), to timely inform of the event the other links downstream in the supply chain, to seek alternative solutions/providers.

Do you have another question on Covid-19 in Israel?

Tell us your need, one of our experts will be in touch shortly.