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Repercussions on Events of Force Majeure And Impossibility

Repercussions on Events of Force Majeure And Impossibility

Repercussions on Events of Force Majeure And Impossibility

Special Focus on the New Coronavirus: NCOVID-19

Ncovid-19 (novel coronavirus or Wuhan virus) has been classified as a pandemic by the World Health Organisation on 11.03.2020.[1] However, even before that official characterisation, the virus outbreak was affecting the normal course of things in a number of countries and economies. On the very same day when the WHO classified the virus as a pandemic, the first ncovid-19 case was officially detected in Turkey. At the time of writing of this paper—i.e. 6 days after the detection of the first case, the number of officially confirmed cases increased to 191 and, unfortunately, two Turkish citizens died because of the resulting disease. Turkish Government and people have taken a number of precautions to contain the virus and it is likely that additional measures are to be taken. On 16.03.2020 Internal Affairs Ministry issued a circular to all governors of Turkish Republic ordering suspension of all cafes, bars, restaurants, fitness centres and other places in which there is a high risk of infection.[2]

Although it is apparently not as important as public health matters and lives of individuals, businesses are understandably concerned as to how this extraordinary situation is going to affect their ability to perform their contractual obligations if they become unable to honour their contracts. Therefore, this paper is drafted to address the issues of force majeure and impossibility. We would like to note that, this paper does not deal with the contractual obligations in terms of employment law. Firstly, this paper is to discuss the notion of force majeure and impossibility under Turkish law. Afterwards, it will analyse the situation in the context of concluded contracts and the contracts which are yet to be concluded.

Impossibility and Force Majeure

As a civil law country, Turkey has a generalised concept of impossibility. According to section 136 of the Turkish Code of Obligations (hereinafter “TCO”) if performance of an obligation becomes impossible for reasons not attributable to the obligor, then such obligation ceases to exist. What is meant by “impossibility” is emergence of an impediment which cannot be eliminated, and which is preventing the obligor to comply with its obligations.[3] Impossibility may be objective or subjective. The generally accepted approach is that, if the extent of impossibility is such that no-one can perform the relevant obligation, the impossibility is an objective one. If, on the other hand, it would be possible for the other to perform the obligation despite being impossible for the obligor, then there is a subjective impossibility. This difference is not of importance regarding the existing contracts. Irrespective of whether it is objective or subjective, if impossibility arises for reasons not attributable to the obligor, the obligor is released from its obligations. That being said, as a principle, impediments which temporarily impede performance do not extinguish the obligation, but only cause a delay on the performance of it; except where, from the parties’ intention or the nature of the performance, it is understood that the performance can only be accepted during a certain period of time.[4] Such events’ characterisation would be “extraordinary event” or “force majeure event” (see below for more details). In such case, the delay of the performance will be excused.

Force majeure, on the other hand, is a different concept. According to the European Commission,  “Force majeure is not limited to absolute impossibility but must be understood in the sense of unusual circumstances, outside the control of the trader, the consequences of which, in spite of the exercise of all due care, could not have been avoided except at the cost of excessive sacrifice.”[5] Although force majeure is also a recognised terminology for Turkish contract law,[6] the above-mentioned section 136 makes no mention of “force majeure”. However, the concept is recognised in the literature as an event exculpating the obligor. If an external event inevitably prevents the obligor to perform its obligation despite all mitigation efforts of the obligor, then the obligor will be relieved from performance due to such force majeure event.[7] The mitigation duty here is defined in a manner connoting objective impossibility—despite all possible efforts, no matter how costly, it should be absolutely impossible to avoid from the said event.[8] Therefore, in the context of contractual terminology, reference needs to be made “all endeavours” instead of “commercially reasonable endeavours”. However, the parties are free to agree otherwise in their contracts.

If the said event can be avoided with measures which would not be commercially reasonable, but not with commercially reasonable efforts, the event will be classified as an “extraordinary event” instead of force majeure. Therefore Turkish contracts law has another layer below force majeure the preconditions of which are relatively more lenient. Another difference between these two concepts is that, although the relevant event must be external in order to be classified as a force majeure event, such a condition is not valid for extraordinary events.[9]  However, this classification does not carry much practical importance (at least in the context of this paper) as the end result of both classifications is the same. The effect of force a majeure event or an extraordinary event is to demonstrate that the obligor was not negligent in terms of failing to comply with the contract and therefore cannot be held responsible for the period during which the obligor was prevented due to a force majeure or an extraordinary event. It disconnects the causal relationship between the obligor’s actions/omissions with the non-compliance.[10]

Therefore, although impossibility has the effect of ending the contractual obligations, the effect of force majeure and extraordinary events is that they prevent the creditor to sue for damages or claim penalties due to the want of negligence on the part of the obligor. This means, however, when the obligor’s liability is strict liability, the obligor will not be able to escape from such liability by claiming force majeure.

In order to consolidate the three different terminologies that have been explained in this paper so far, the following recap needs to be made: if the obligor’s performance is rendered impossible by an event, this extinguishes the obligor’s obligation. When the occurring event is force majeure or an extraordinary event preventing the obligor to perform on time, the obligor would not be held responsible from delayed performance, but the underlying obligation will remain intact. On the other hand, if the extent of force majeure or extraordinary event is such that rendering performance impossible, then section 136 of TCO applies and the obligation ceases to exist.[11]

After explaining the status of law, it should also be noted that it is very common to see “force majeure” clauses in the contracts. The law permits the parties to regulate the issue of force majeure in their contracts.[12] Typically, such clauses list certain events which may be deemed as force majeure events if some further conditions are met. Generally speaking, these conditions are typically as follows: (i) the event should not originate from the obligor’s fault, (ii) it should directly impede performance, (iii) it should not be foreseeable at the time of signing of the contract, (iv) it should be unavoidable despite all efforts/commercially reasonable efforts of the obligor and (v) the affected party makes a notification within a specified period of time. Furthermore, the provision would state that if a force majeure event lasts for a period of time, each party has a right to terminate the contract. Normally, if the performance is prevented by a hindrance that is known to end at some point which, however, cannot be determined, the obligation becomes extinguished as per the law and[13] when the hindrance is lifted the extinguished obligation will not be deemed to have been revived.[14] This is a fine distinction causing difficulties in practice. However, when the parties define a period expiry of which would give right to termination, reference will be made to such provision instead of the law.

The present author’s opinion is that such provisions entitled “force majeure” shall be taken as regulating both force majeure events and extraordinary events. According to section 19 of TCO, the parties’ true intention should be taken into consideration in terms of construing the contract instead of the literal meanings of the words described. In that vein, the parties’ intention should be considered as regulating the effects of unexpected events and this should not be hampered due to the fact that they did not make reference to extraordinary events—a terminology which almost never appears on contracts. Therefore, the parties’ agreement should be taken as covering both concepts.

Existing Contracts

As mentioned in the beginning of this paper, ncovid-19 outbreak has reached a worrying extent in Turkey. At the time of writing of this paper, the most predominant implications are fourteen days’ quarantines that are being applied to those persons coming from other countries, flight restrictions to and from certain countries. In addition to these administrative measures, people are being told to avoid social contact in order to prevent the risk from being infected.

Although the determination needs to be made on a case-by-case basis, the situation, as it currently stands, does not suffice to say that performance of contractual obligations became impossible. However, it can be regarded as a force majeure event if it directly impedes performance of the contract. In this context, mitigation obligation may be a source of dispute especially if the contract does not make a reference to “commercially reasonable endeavours” criteria. This is especially important for the performance obligations which require transportation, accommodation and physical work. The present author’s opinion is that, the mitigation obligation should not be taken too far even if the contract contemplates “all endeavours”. It is obvious that the current situation poses an undeniable risk and no obligor shall be forced to risk its and its employees’ health and life.

In the event of escalation of ncovid-19 to an extent where it renders performance impossible, then the obligor would be relieved from performance as explained above. However, the obligor will be responsible to return what it has received pursuant to unjust enrichment provisions.

Contracts yet to be Executed

For the contracts which are to be concluded after the outbreak, the biggest hurdle would be foreseeability. According to Tandoğan, even if an event is foreseeable it does not automatically mean that it will not be regarded as a force majeure event.[15] According to the said author, the issue needs to be evaluated in the context of unavoidability.[16] However, if the contract contemplates foreseeability as a negative pre-condition for force majeure events, the present author’s opinion is that ncovid-19’s foreseeable impacts cannot be regarded as force majeure in the contractual context, but it needs to be noted that even though the outbreak is known today, it may still have unforeseeable effects which may result in triggering of the said force majeure provisions.

In the event that the contract is concluded despite an existing impossibility caused by ncovid-19, the contract will be invalid. Furthermore, the obligor may be held responsible against the creditor under the doctrine of culpa in contrahendo which may impose liability to those who are negligently undertaking impossible obligations and damage their counterparties.

Conclusion

This paper outlined the possible legal implications of ncovid-19 outbreak in the context of force majeure and impossibility notions which may or may not apply to specific contracts depending on their particular circumstances. The general information contained in this paper has not been drafted with the intention of providing legal advice to individuals/businesses and it should not be used as such.

@Rustu Mert Kaska – Kesikli Law Firm


[1] https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19—11-march-2020

[2] https://www.icisleri.gov.tr/81-il-valiligine-koronavirus-tedbirleri-konulu-ek-genelge-gonderildi

[3] Haluk Tandoğan, Türk Mes’uliyet Hukuku (İstanbul, 2010) p. 395.

[4] Andreas Von Tuhr, Borçlar Hukuku Cilt 2, trc. Av. Cevat Edege (İstanbul, 1953) p.602.

[5] Notice 88/C259/07 O.J. C259/11)

[6] For instance see sections 228, 373, 576 and 579 of TCO.

[7] Tandoğan, p.466 ve 467.

[8] Tandoğan, p.455

[9] Kemal Oğuzman, Turgut Öz, Borçlar Hukuku Genel Hükümler Cilt – 1 (İstanbul, 2011) s.474.

[10] Tandoğan, p.468.

[11] Oğuzman, Öz, p. 474, fn.347

[12] Tandoğan, p.468.

[13] Von Tuhr, p. 602

[14] Ibid.

[15] Tandoğan, p. 452 and 453

[16] Ibid.