DOES THE CURRENT CORONA CRISIS CONSTITUTE A FORCE MAJEURE SITUATION – ASSESSMENT FROM THE PERSPECTIVE OF FINNISH LAW
Finnish government has on 16 March 2020 declared a state of emergency in Finland over the coronavirus outbreak. Also several other restrictions regarding the free movement of people and operations of businesses have been imposed and e.g. schools and restaurants are ordered to be closed. The current restrictions will remain in force until 13 May 2020.
The application of force majeure in the Finnish legal system is quite strict and the coronavirus may not be automatically considered a force majeure event. However, in the present situation in which the authorities have imposed restrictions and prohibit certain activities it is quite easy to argue that force majeure situation applies in the areas which are affected by such governmental restrictions. It is obvious that certain businesses suffer more from coronavirus that others and the applicability of a force majeure should be considered in each individual case separately based on interpretation of the contract in question and the causality between the corona crisis and the impediment. In order to help such interpretation, certain institutions like local Chamber of Commerce, may issue “Force Majeure Certificates”.
In a force majeure situation a contractual party is temporarily freed from its contractual obligations without repercussions due to an unexpected and unforeseeable impediment. Force majeure may be constituted based on a contract clause, when the clause itself often specifies the conditions and circumstances in which the clause is applicable, i.e. a pandemic could be included. However, it is important to note that according to principles of Finnish contract law, a party may refer to the force majeure even without a specific contractual clause, as force majeure is considered a general contractual restriction of liability.
Force majeure clauses typically require that the event or circumstances could not have been prevented or the effects minimized by exercising precaution. This underlines the idea that parties may invoke the clause only when the force majeure circumstances prevent the fulfilling of a contractual obligation, not only because the coronavirus makes the fulfilling of obligations harder or less profitable; therefore a rise in costs or delays due to a pandemic do not typically constitute a force majeure event.
Even if the force majeure clause may seem to be applicable, it is important to consider whether it is beneficial for the parties to invoke the clause. The affected party has cumulative burden of proof of showing circumstances which impede the fulfilling of an obligation, the foreseeability of the impediment and the non-existence of any means to overcome it. The evoking of the clause may also cause the other contract party to react in a way that has significant financial effects. Therefore, the parties should openly communicate and negotiate about the situation and examine alternative measures such as time extensions and other remedies.
If the force majeure clause is invoked, the affected party needs to immediately inform the contract party and open a dialog about the situation, provide necessary documents and otherwise carefully fulfill all the terms of the force majeure clause and also other parts of the mutual contract based on the principle of fidelity in contract law.
Mikael Salmi and Erika Nylund
+358 40 5464435