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JURNAL
SOSAINS
JURNAL SOSIAL DAN SAINS
VOL 2 NO 3 2022
P-ISSN 2774-7018, E-ISSN 2774-700X
COVID-19 PANDEMIC AS AN EXCUSE OF NON-PERFORMANCE OF
CONTRACTUAL OBLIGATIONS FROM TRANSNATIONAL LAW
PERSPECTIVE
Elizabeth Calista Nawangsari
Faculty of Law, Padjadjaran University, Indonesia
Corresponding Author : Elizabeth Calista Nawangsari
Email : [email protected]
Info Artikel :
Accepted : February, 27
th
2022
Approved : March, 10
th
2022
Published : March, 15
th
2022
Keywords:
COVID-19,
International
Contracts,
Transnational
Contract Law
ABSTRACT
Background: The outbreak of COVID-19 has greatlyinfluenced the world’s economic
situation. Its lethal potential as well as its drastic effects on international contracts,
would lead to the post-pandemic litigation and arbitration questioning the
applicability of the doctrines of force majeure, frustration, and hardship as an excuse
of non-performances of several contractual obligations amidst the COVID-19
pandemic. Purpose: This research will discuss on the matter of the applicability of the
aforementioned doctrines and its subsequent effects to excuse a non-performing party.
Methods: This research uses normative juridical method with descriptive analytical
approach by researching library materials and secondary data. Results: Invoking the
force majeure clause requires the event to occur externally beyond the obligor’s
control; the event and its consequences could not reasonably avoided or overcome
by the obligor based on an external event not by their own fault. On the other
hand, contracts can be frustrated under several bases, such as changes in the law,
supervening illegality, outbreak of war, cancellation of an expected event, and
abnormal delay outside what the parties could have reasonably contemplated at
the time of contracting. While the requirements of hardship encompass the
occurrence of an event for which the obligor has not assumed the risk, non-
foreseeability, unavoidability and the causing by the event of a fundamental
economic disequilibrium in the contract. Conclusion: To apply the doctrines of
force majeure, frustration, and hardship as an excuse of non-performance of
contractual obligations during an unprecedented event such as the COVID-19
outbreak, it must be assessed on a case-by-case basis of the language of the
contract in light of the governing law and the circumstances of the parties’
commercial relationship.
INTRODUCTION
On January 30, 2020, the Director-General of the World Health Organization
(WHO) announced that the outbreak of COVID-19 constitutes a Public Health
Emergency of International Concern (PHEIC). The COVID-19 then continues to spread
Covid-19 Pandemic as an Excuse of Non-Performance
of Contractual Obligations from Transnational Law
Perspective
2022
Elizabeth Calista Nawangsari 405
rapidly around the world and almost every country has reported cases. As the infection
has sickened more than 3.2 million people, more than 80 countries have closed their
borders to arrivals from countries with infections, instructed their populations to self-
quarantine, ordered businesses to close, and closed schools to an estimated 1.5 billion
children. Although these measures were taken in order to suppress the transmission of the
COVID-19, on the other side it indicates seriousness of the impacts on global economic
activity (Hansen, 2020).
The COVID-19 outbreak is negatively influencing the global economic growth on
a scale that has not been experienced since at least the global financial crisis of 2008-
2009 as shown by the growing list of economic indicators (Jackson et al., 2020). For
instance, foreign investors in Asia have pulled an estimated $26 billion out of developing
Asian economies and more than $16 billion out of India, increasing concerns of a major
economic recession (Abiad et al., 2018). On the other hand, in Europe, the first quarter
2020 data shows that the Eurozone economy contracted by 3.8% at an annual rate, the
largest quarterly decline since the series started in 1995 (Alesina, Favero, & Giavazzi,
2020).
In light of its major impact on the global economy, there are three doctrines in
international contract that which lately often associated with the COVID-19 outbreak,
which are force majeure, frustration, and hardship. These three doctrines are essentially
dealing with the concept of unexpected future events and unforeseen changes in
circumstances and its effects particularly towards international contracts (Harmathy,
2016). The outbreak of COVID-19 seems to be a classic example for such an event
covered under the aforementioned doctrines. However, it remains a questionable legal
issue of whether a force majeure, frustration, and hardship events do exist in the COVID-
19 circumstances. Based on the previous background explanation, this research is
undertaken in order to clarify the the impact of COVID-19 on sales of goods contracts in
relation to the doctrines of force majeure, hardship, and frustration. This research will
discuss on the matter of the applicability of the aforementioned doctrines and its
subsequent effects to excuse a non-performing party.
RESEARCH METHODS
The method used in this research is normative juridical with descriptive analytical
approach. By implementing such method and approach, this research focuses on legal
rules, such as principles, rules, or legal doctrines in order to answer the legal issue by
researching library materials and secondary data (Hutchinson & Duncan, 2012). The data
are obtained through documentary study by reviewing secondary materials from online
database sources which consist of primary, secondary, and tertiary legal materials.
The primary legal materials are the authoritative legal materials that are used in this
research which are the United Nations Convention on Contracts for the International Sale
of Goods (CISG) and the UNIDROIT Principles of International Commercial Contracts
2016 (Janssen & Chau, 2017). The secondary materials are supporting sources that are
essentially analyzed and evaluate the information from primary materials (Glser,
Soulier, & Tercero Espinoza, 2013). These materials include books, journals, papers, and
other documents in relation to the COVID-19 pandemic situation and the doctrines of
force majeure, frustration, and hardship that are obtained through electronic sources.
Lastly, the tertiary legal materials used in this research include dictionaries and other
supporting documents that complement both primary and secondary legal materials.
By applying the normative legal research method, the present research attempts to
describe, analyze, and contextualize certain rules of law applicable towards the issue of
Volume 2, Nomor 3, Maret 2022
p-ISSN 2774-7018 ; e-ISSN 2774-700X
406 http://sosains.greenvest.co.id
the applicability of the doctrines of force majeure, frustration, and hardship during the
COVID-19 pandemic (Diantha & SH, 2017).
RESULTS AND DISCUSSION
1. The Concept of Force majeure
The force majeure doctrine is originally derived from a civil law concept,
specifically from the French Code Civil (Ezeldin & Abu Helw, 2018), which sometimes
also known as “Act of God” in English translation (Berger & Behn, 2019). This doctrine
is commonly included in commercial contracts in a form of a force majeure clause, which
associates with supervening unforeseen events that would hinder the performance of
some obligations under a contract (Ezeldin & Abu Helw, 2018). The situations that can
be considered as supervening unforeseen events are include fires, floods, droughts,
earthquakes, civil riots, terrorist attacks, etc.
It can then be inferred that such an event must be external, unexpected, and
avoidable in order to be qualified as force majeure (Azfar, 2012). In sum, the existence
of a force majeure clause is essentially to excuse a party from performing its contractual
obligation based on an unforeseen event occurred beyond its control, whether on a
temporary or permanent basis (Thames Valley Power Ltd v Total Gas & Power Ltd).
2. The Concept of Frustration
The concept of frustration was originally recognized in Roman contract law, first
gained traction in English Law, and until now it is validated in American Law (Jayabalan,
2020). In Taylor v. Caldwell, the court held that a frustration excuse not only required the
destruction of the implied condition, but also the impossibility of performance ().
However, the frustration doctrine today has developed into a narrower version of a
doctrine that requires the existence of circumstances that could modify or destroy the
parties’ “common purpose” within their contract that would create a radically different
obligation rendering any performances are nearly impossible (Canary Wharf (BP4) T1
Ltd v European Medicines Agency).
3. The Concept of Hardship
The characteristic of the hardship doctrine is that this requires a possibility the
continuance of a specific performance although there exists an excessive impact because
of a change of circumstances (Tedim et al., 2018). It can be inferred that hardship relates
with a difficult situation where the aggrieved party is still able to perform some
contractual obligations, where such a situation is not anticipated at the time the contract
was concluded.
4. The Applicability of the Doctrines of Force majeure, Frustration, and Hardship
amidst the COVID-19 Pandemic as an Excuse of Non-Performance of Contractual
Obligations
Under the transnational contract law, the doctrine of force majeure can be
considered as part of the “New Lex Mercatoria”, or the new law of merchant. The
reasons behind this are because most international contracts contain force majeure
clauses, this doctrine was explicitly recognized as a general principle of law by the Iran-
United States Claims Tribunal, and it is also reflected in Art. 79 of the CISG and Art.
7.1.7 of the UPICC 2016.
Covid-19 Pandemic as an Excuse of Non-Performance
of Contractual Obligations from Transnational Law
Perspective
2022
Elizabeth Calista Nawangsari 407
Based on the developing practice of international contracts and the transnational
contract law itself, there are four cumulative requirements in order for the force majeure
clause to be effective, which are :
- Externality
the event must occur externally where the risk is not assumed by the obligor;
- Unavoidability or Irresistibility
the event must be beyond the obligor’s control;
- Unforeseeability
the event and its consequences could not reasonably have been avoided or
overcome by the obligor;
- Causation
the obligor’s non-performance was based on an external event not by their own
fault.
If a non-performing party invoked a force majeure excuse that has met the above
requirements, their contractual performance could be partially, totally, temporarily, or
permanently suspended, whereby termination is only an “ultima ratio” remedy. In the
context of COVID-19 outbreak, courts and arbitral tribunals have held that such an event
has met the four-pronged test since the situation caused by the effects of or by measures
taken to combat the COVID-19 pandemic constitutes a force majeure event. As a result,
the aggrieved party being under an obligation to continue to perform only insofar as this
is reasonable under the circumstances (McMahon, Buyx, & Prainsack, 2020).
On the other hand, in regard to the doctrine of frustration, the court in Metropolitan
Water Board v Dick Kerr held that contracts can be frustrated under several bases, such
as changes in the law, supervening illegality, outbreak of war, cancellation of an expected
event, and abnormal delay outside what the parties could have reasonably contemplated at
the time of contracting. In relation to the COVID-19 situations, governmental restrictions
may render the performance of certain obligations illegal. This may potentially give rise
to a claim of supervening illegality and is therefore suffice as a basis for a contract to be
frustrated.
As to the hardship doctrine, Art. 6.2.2 UPICC shall be referred to in determining its
requirements. Under said regulation, the requirements of hardship encompass the
occurrence of an event for which the obligor has not assumed the risk, non-foreseeability,
unavoidability and the causing by the event of a fundamental economic disequilibrium in
the contract. The outbreak of COVID-19 has met those criteria, which cause fundamental
economic disequilibrium such that placed an excessive burden on the aggrieved party due
to a fundamental increase in costs and a diminished value of the performance of the other
side. Therefore, Art. 6.2.3 UPICC gives the aggrieved party the right to request for a
contract renegotiation.
CONCLUSION
The applicability of the doctrines of force majeure, frustration, and hardship
require an analysis on a case-by-case basis of the language of the contract in light of the
governing law and the circumstances of the parties’ commercial relationship. The strict
requirements for these doctrines further emphasize the accountability of parties to
commercial contracts for their own business affairs as other side of party autonomy.
Volume 2, Nomor 3, Maret 2022
p-ISSN 2774-7018 ; e-ISSN 2774-700X
408 http://sosains.greenvest.co.id
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