Author: Brigitta Jõgi

Estonia has been in a state of emergency for a month now, which has limited the work and regular routines of businesses and individuals alike. Sports clubs and entertainment centers are closed, and people are forbidden to visit shopping centers. Accordingly, businesses experience many disruptions in their usual business routines and activities.

In such a situation, it is inevitable that the entrepreneur must be resourceful and flexible. Under certain conditions, it is possible to rely on § 103 (2) of the Law of Obligations Act (hereinafter LOA), which establishes force majeure.

If a party is unable to fulfill its contractual obligation, the breach may be excusable due to force majeure. Pursuant to § 103 (2) of the LOA, force majeure are circumstances which are beyond the control of the obligor and which, at the time the contract was entered into or the noncontractual obligation arose, the obligor could not reasonably have been expected to take into account, avoid or overcome the impediment or the consequences thereof which the obligor could not reasonably have been expected to overcome.

Each case must be considered on its own merits

It would be a misconception that, due to the emergency situation in the country, force majeure applies to every contract and no one is responsible for a breach of obligations. However, it is necessary to observe each case separately and to determine whether, in a case, the restrictions imposed in an emergency have become decisive for the performance of a particular contractual obligation.

In order for force majeure to be an excuse for breach of contract, certain conditions must be met. There is no doubt that the declaration of emergency situation is a circumstance beyond the control of a party, i.e. the emergency situation has not been declared due to an act or omission of a party. It is common ground that the situation could not have been foreseen by any of the parties. This means that the emergency situation and, consequently, the declaration of emergency situation has been unexpected, and it cannot reasonably be expected that the contracting party would have taken this into account. Emergency situation orders are mandatory for everyone to follow, i.e. they are orders and prohibitions that cannot be avoided or ignored.

There is an emergency situation in Estonia, but in any case, it must be analyzed separately whether it has directly impeded the fulfillment of a specific contractual obligation. For example, if people are not allowed to enter sports clubs, the club owner will not be able to fulfill its contractual obligations on behalf of club visitors or provide training opportunities for people. Consequently, the prohibition imposed in an emergency directly and immediately affects the ability of a sports club to fulfill its obligations. The performance of its duties is excusable due to force majeure.

In addition, it is impossible to sell goods if it takes place only on the spot in a shopping center, since such shops must be closed. However, sales in other locations and platforms can continue. Crossing the state border and access to the islands is allowed for people who are involved in the transport of goods and raw materials and who do not have any symptoms of the disease. It must therefore be held that the declaration of emergency situation and the accompanying restrictions have not led to a situation in which it is impossible for sellers and carriers of goods to fulfill their obligations.

There is no escape from the obligation to pay

It is necessary to keep in mind the general principle, according to which a violation of the obligation to pay money is in principle never excusable (§ 108 (1) of the LOA). If the company’s activities are restricted due to an emergency and the association is unable to provide any of its services due to force majeure, non-performance of all existing contracts is not automatically excused. This means that if, for example, the existence of certain goods ordered from third parties is normally essential for the provision of the service, the financial obligation arising from the contract with the supplier must be fulfilled (provided, of course, that the goods are properly made available to the customer). This means that even if the company is in financial difficulties due to force majeure, the financially difficult situation is not a direct basis for breach of contract and the person is not released from liability.

In addition to the above conditions, in order to be released from liability, the debtor must prove that the circumstance which caused the breach of the obligation could not have been avoided or exceeded. The debtor must therefore make reasonable efforts to fulfill its obligations despite the emergency situation. If it is impossible to sell the goods in the store, the seller must find alternatives for the delivery of the goods, for example, offer the goods in the e-store and use courier services.

Pursuant to § 102 of the LOA, the debtor is required to immediately notify the creditor of the circumstance preventing the performance of the obligation and the effect thereof on the performance of the obligation. If the debtor breaches this obligation, his obligation to pay damages may arise, notwithstanding that force majeure prevented performance of the contract.

If the effect of force majeure is temporary, the breach of the obligation is excusable only during the time when the force majeure prevented the performance of the obligation (§ 103 (3) of the LOA). In the present case, the emergency situation applies until 1 May 2020, unless the Government of the Republic decides to extend it. Therefore, force majeure due to an emergency situation can no longer be relied on after the end of the emergency situation.

If the existence of force majeure has been established and the breach of the obligation of the contracting party is excusable, the injured party may withdraw from the contract or cancel the contract on the basis of § 105 of the LOA. He may also himself refuse to fulfill his obligations in such case. Thus, for example, if a sports club is unable to provide a service due to force majeure, the other party has the right to refuse to fulfill its obligation, i.e. to pay a fee. If the person cannot wait for the effects of force majeure to end, he or she may cancel the contract on the grounds of breach of the service provider's obligations under the contract.

In conclusion, it must be concluded that the analysis of the excusability of an infringement is based on the circumstances of each individual case, i.e. force majeure does not apply in every situation simply because an emergency situation has been declared in the country. Certainly, an emergency situation does not release anyone from a financial obligation. Payment of the fee may be refused only if the other party has not fulfilled its contractual obligations. The debtor must do everything reasonably possible to fulfill his contractual obligations. Force majeure can only be relieved of liability for the duration of the emergency situation. If the debtor is released from liability due to force majeure, the creditor has the right to cancel the contract.

If you have questions about whether a force majeure clause could be applied to your company or your clients, please contact our legal counsel at 626 0500 or write to info@ee.gt.com.

 

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