Force Majeure and loss of the basis for business in Spain

When does the obligation to perform the contract cease to apply?

The concept of force majeure is not defined in the Spanish Civil Code (código civil). However, Art. 1105 of the código civil states that a contracting party is not liable for those events which were not foreseeable or which, if foreseeable, could not have been avoided. According to established case law, the concept of force majeure is therefore characterised by two criteria, namely unforeseeable and unavoidability. However, it is generally agreed that the obligation to fulfil the contract only ceases to apply if the unforeseeable and unavoidable event also comes from outside, i.e. was not caused by the party invoking force majeure. Furthermore, a causal connection between the event of force majeure and the non-fulfilment of the obligation is required. The event must therefore cause and result in the non-performance.

When may a withdrawal or an adjustment of the contractual relationship be considered?

Withdrawal or adjustment of the contractual relationship is conceivable on the basis of the principle of "rebus sic stantibus". The application of this principle requires that the circumstances under which the contract was concluded have changed significantly and that the parties would not have concluded the contract had they known of these new, unforeseeable circumstances. The decisive factor is that these circumstances occur after the conclusion of the contract. Furthermore, there must be a gross disproportion between the benefits that leads to an imbalance between the parties which cannot be remedied by other means. Performance of the contract remains possible, but is no longer reasonable for one party. If such a case exists, an adjustment of the terms of the contract can be considered first in order to restore the contractual balance between the parties. If this is not possible, the contract can be terminated.

How can future contractual relationships be optimally structured?

The coronavirus crisis has exposed the difficulties both in the practical application of the above legal principles and their uncertainty regarding their legal consequences. The contracting parties should take care to ensure that the principles are included in the contracts in the future, clearly specifying which circumstances are considered by the parties to be force majeure in any case. The parties should also clearly agree on the legal consequences that will occur in case of unforeseeable circumstances in order to avoid disputes later on.

Autor: Axel Roth