COVID-19 as an unforeseen circumstance

Liability for non-performance of contractual obligations can be avoided if the non-performance was caused by circumstances that were unforeseen at the time the contract was entered into, according to article 6:258 DCC. The term "unforeseen circumstance" should be read as "a circumstance not (tacitly) discounted in the agreement." Unforeseen circumstances within the meaning of art. 6:258 can only be circumstances that were still in the future at the time of the conclusion of the agreement. This means that an appeal to art. 6:258 of the Dutch Civil Code, even if the agreement contains no provision as to (the consequences of) the relevant circumstances, will fail if those circumstances already existed at the time the agreement was concluded. What is unforeseeable depends entirely on the facts and circumstances of the case at hand. This will not be any different in relation to COVID-19 claims. The court will most likely recognize the outbreak of a global pandemic as an unforeseen circumstance.[1]

An appeal to unforeseen circumstances might not succeed if parties have included in their agreement a risk-mitigating clause with regard to the occurrence of an unknown disease, or the affected party has taken out insurance covering such occurrence. An example is the All-England Lawn Tennis Club, which had taken out an insurance policy against losses caused by a cancellation of 'Wimbledon' due to a pandemic.[2] Under Dutch law, such insurance most likely would prevent the All-England Lawn Tennis Club from making a claim to unforeseen circumstances. However, this will be an exception; most businesses (and governments) have not foreseen, or taken precautions for, any pandemic of this scale and with such dire consequences.

An appeal to unforeseen circumstances may lead to an amendment of the contract. This is the benefit of article 6:258 DCC vis-à-vis the force majeure provision of article 6:75 DCC: it allows for an alteration of the conditions of the agreement instead of just rescission. At the request of one of the parties to an agreement, the court may change the legal effects of that agreement or it may dissolve this agreement in full or in part if there are unforeseen circumstances of such a nature that the opposite party, according to standards of reasonableness and fairness, may not expect an unchanged continuation of the agreement. The court may change or dissolve the agreement with retroactive effect.

The affected party must make a claim to unforeseen circumstances; ex officio application of article 6: 258 DCC by the court is not allowed. The reason why the consequences of the unforeseen circumstances should not be for the risk or account of the affected party must be substantiated. In relation to COVID-19, this implies substantiating why the financial risks, as a direct or indirect result of the virus, do not qualify as normal entrepreneurial risk.
 

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