What to include in a contract regarding war?

War as a Force Majeure Clause?

Force majeure (vis maior) is a circumstance that can release you from liability for damages for failure to perform contractual obligations.

For example, force majeure can suspend the running of the statute of limitations (Section 651 of the Czech Civil Code (hereinafter the "CC")) or, if you are the client, it gives you the right to carry out an additional inspection of goods (Section 2626(2) of the CC). For the contracting parties, including a force majeure clause is advisable as it increases legal protection and strengthens legal certainty.

So what is force majeure and how can you use it to your advantage in a contract? 

To qualify as force majeure, an event must be external, which cannot be averted even with all due effort, given its extraordinary and unforeseeable nature. A typical example of force majeure is a pandemic or a war.

Conversely, events of a personal or economic nature, which are internal circumstances, cannot be considered force majeure. For example, an employee strike or predictable adverse weather, such as snow in the winter months, is not considered force majeure.

For a war to be unforeseeable, it must arise unexpectedly. Unforeseeability must be assessed in relation to the time the contract was concluded. Therefore, if you are entering into a contract in the current situation where a war is ongoing, it is assumed that you are aware of the increased risks.

In the opposite case, where the conflict has unexpectedly affected a contract concluded before the war, we can speak of the application of the force majeure doctrine. However, the contracting party must make every effort to remove the contractual obstacle.

The surmountability of the obstacle must be assessed objectively – meaning it must be surmountable for any person acting properly who would be in a similar situation. The law further presumes higher standards of diligence for the professional performance of an expert. Therefore, if you conclude a contract as a member of a certain profession, you are indicating that you are capable of acting with the knowledge and diligence associated with such a profession.

As an example of averting an obstacle, we can mention a logistics company that, when transporting goods, must make an effort to change the route to bypass the conflict-affected territory, especially if the state of war has been ongoing for a longer period.

Another example is a construction company in default that has employment contracts with citizens of a state affected by war. If the company defaults on its obligation due to the departure of workers responding to the state of war, we can again speak of the application of the force majeure doctrine. However, the construction company must make every effort to avert the impact, for example, by trying to find replacement workers to ensure timely performance.

However, if the impacts cannot be averted even with all due effort, the contracting party is released from liability for damages.

So how do you set up a contract to your best advantage?

Given the invasion of Ukraine by the armed forces of the Russian Federation and general contractual prudence, it is advisable to agree with the other party on the risks that can be foreseen. For example, it is advisable to agree on the amount and conditions for the application of contractual penalties in the event of a force majeure obstacle, as force majeure generally does not apply to them.

At the same time, we recommend addressing situations where only partial performance of the obligation is possible. As an example, we can take a complex construction supply of goods that has two components – a delivery of concrete from the Czech Republic and a delivery of iron from Ukraine. Will the party be obliged to perform the obligation at least for the part that can be fulfilled? Or will it be released from performance for the duration of the force majeure obstacle?

We also recommend arranging for alternative performance, or defining the amount of costs that the parties consider reasonable to overcome the consequences. It is appropriate to formulate the risks that each party will bear as precisely as possible. Who will be responsible for extraordinary costs incurred? To what extent should damages be limited?

It is also possible to set up the contract so that it is automatically terminated in the event of a force majeure circumstance. The cases that the parties associate with the consequences of force majeure can also be exhaustively limited – it is even possible to completely exclude the consequences of force majeure by contract.

In these uncertain times, we also recommend including other types of clauses in contracts

A currency clause will help protect you against high currency instability, where it is very difficult to predict the development of exchange rates. A price clause will allow you, as the seller, to increase the purchase price if there is an unexpected increase in the cost of inputs.

Through a fuel clause, it is possible to agree that if the price of fuel rises, the price of the entire transport will increase proportionally. Furthermore, it is possible, for example in the construction industry, to agree on an inflation clause, which adjusts the price of construction work in relation to the development of inflation.

Given the freedom of contract that permeates private law, the form of a contractual clause can be shaped in various ways and, with the help of our attorneys from the ARROWS law firm, can be best adapted to the specific contractual relationship according to the client's needs. 

Read also:

CORONAVIRUS AND CONTRACTS 2021 (BREACH, CONSEQUENCES, WITHDRAWAL)

OPTIONS FOR EMPLOYING REFUGEES FROM UKRAINE IN 2022

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