Many different actors of the economy already talk about invoking force majeure if necessary, as a ground to be exempted from certain obligations, even if just provisionally. The topic is already informally debated by the lawyers, but no standard viewpoint has been met and it is possible that such standard understanding will be at the latest standardized only through the final decisions of the courts in lawsuits conducted regarding force majeure. As regards judicial practice regarding force majeure, even an event such as the credit crunch global crisis of 2008 was not accepted as a general point of reference. We have hereunder briefly summarized under which legal institutions we anticipate the pandemic will be evaluated.

As a fundamental rule, agreements are to be duly performed. This is the aim of an agreement, even if that takes a risk, the accepted obligation is to be performed. In a situation when a party will not duly perform, or only with delay, such is to be deemed as breach of the agreement. In near future however due to the pandemic, more and more delayed transports or siding trucks, retained subcontractors, cancelled travels and delayed monthly rents are to be expected.

First, it is to be minded, whether a breach of contract can already be foreseeable or not. As though regarding agreements that were concluded before the time that COVID-19 virus and related issues have emerged it can be well grounded legally that a non-foreseeable situation has emerged since the conclusion of the agreement, but since the time that the case of the virus was already known, it is best to constantly communicate with the other party and based on the Civil Code, the parties are both obliged to make their best endeavours to mitigate any damages.

Once breach could be an issue, the wording of the written contract is to be analysed. The question to be answered is whether the contract contains any stipulations regarding force majeure. If yes, then it shall contain the legal consequences to be carried by the parties. If the contract does not contain any force majeure stipulations, or it does but those are not specific enough, then legal requirements are to observed.

The Hungarian Civil Code contains no definition for force majeure, on the other hand, the Supreme Court of Hungary has already defined what shall be deemed as such: events of force majeure will not only encumber but make the performance of a contract impossible in a way which is non-avertable by human force. Based on that definition, to our view, it is not to be deemed as force majeure that people are afraid to get infected and thus they do not go to restaurants and cafés or to a work site but a (long-term) curfew as ordered by the government shall be deemed as such.

Based on the Civil Code, legal consequences of force majeure could be as follows:

  • If one party breaches the contract and thus causes damages to the other party, one is to compensate such damages except for the case if one can exempt themselves due to a certain cause. Such causes are, that breach was caused by a circumstance not foreseen at the time of concluding the contract and it is not expectable to avert such breach or the damages caused by it.  Breach of contract is always to be inspected from case-to-case and all three causes are to present at the same time to be exempted. Such circumstance is of course to be in close connection with the virus.
  • If the services stipulated in the contract are impossible to perform, the contract shall cease. In this case, the parties shall make settlements, any services already duly performed are to be paid, and payments made but not performed are to be returned. However, we often do not want our contracts to be ceased, just to waive it for the duration necessary, in such case close communication and negotiations with the other party are recommended.
  • The court may be requested to modify a contract in the event of durable contracts if following the conclusion of the contract, a circumstance has emerged which was not foreseeable upon the conclusion of the contract, it was not caused by the given party and it cannot be deemed as normal risk within their business and yet performing the contract would be highly detrimental due to such new circumstance. Based on the judicial practice, however, even an economic crisis due to a pandemic could be deemed as usual business risk any may not be enough ground for the court to intervene.

Regarding lease agreements, a special decree is to be observed further to the Civil Code. As we reported earlier, for now until 30th June 2020, commercial lease agreements in certain industries cannot be terminated, not even by virtue of an extraordinary termination. This provision does not prevent the parties to deliver a notice of termination to the other party but it maintains the lease agreements in effect until the end of the above period (subject to prolongation). In our opinion, this provision does not grant tenants of fixed-term lease agreements an exemption from the consequences of a premature termination that is attributable to them, i.e. typically from paying (partial or full) rent payable until the end of the lease period.

As a summary, in this brand-new situation, it is highly questionable, whether the above legal consequences will lead to many lawsuits and thus it is highly recommended to handle the issues emerging with due care and treat each case individually.