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21 Nov 2023 Unforeseen circumstances due to corona pandemic in service agreement

The 's-Hertogenbosch Court of Appeal recently issued a landmark ruling. There has been much litigation in recent years about the impact of the corona pandemic on rental agreements. In this case, the court honoured an appeal for dissolution of a different type of contract, namely a service contract, due to unforeseen circumstances (corona pandemic) by adhering to the Supreme Court's judgment of 24 December 2021 on the impact of the corona pandemic on rents of business premises.

 The facts

This matter concerned an agreement concluded in early 2020 to deploy hostesses and provide catering at a trade fair in the second half of March 2020, which fair could not take place due to government measures because of the corona pandemic.

The question was whether the client owed the full agreed price for the work to be performed during the fair scheduled in March 2020, even though the fair had been cancelled due to the corona pandemic outbreak and the contractor had therefore not performed the work. The order confirmation, accompanied by two advance invoices for 50% of the agreed price, had been sent by e-mail dated 3 March 2020. A few hours later (also on 3 March 2020), notice was received that the exhibition would not take place on 20 March 2020.

The contractor took the position that there was an unconditional agreement between the parties which could not be terminated unilaterally and whereby the client was obliged to pay the full agreed price. The client took the view that the contract had to be terminated due to unforeseen circumstances.

Subdistrict court judgment and appeal

At first instance, the contractor was vindicated. According to the subdistrict court, the client had to pay the contractor the full agreed price. The client appealed and the district court came to a different judgment.

On appeal, the following question arose: "Does the outbreak of the corona pandemic in March 2020 constitute an unforeseen circumstance as referred to in Article 6:258(1) of the Civil Code, on the basis of which the contract must be dissolved or amended?"

The client took the position that due to the fact that the fair had been cancelled, it could no longer use the agreed services at all and that the contractor in turn could not fulfil its commitments. The corona pandemic was a circumstance for both parties that they had not foreseen when concluding the contract. Therefore, in accordance with the "share the pain" principle used in corona jurisprudence, the loss suffered by the parties had to be shared between the two parties. The disadvantage suffered by both parties consisted of the time and energy they had spent negotiating the conclusion of the contract. No financial loss had been suffered by the contractor because it had not yet incurred any costs on 3 March. To that extent, therefore, there was no financial disadvantage to be divided between the parties. According to the client, the contract therefore had to be dissolved in its entirety so that both parties would be released from their obligations.

Judgment of the Court of Appeal

The court of appeal stated the following. According to Section 6:258(1) of the Dutch Civil Code, the court may, at the request of one of the parties, alter the consequences of a contract or dissolve it in whole or in part on the grounds of unforeseen circumstances of such a nature that the other party cannot expect the contract to be maintained unchanged according to standards of reasonableness and fairness. The amendment or termination may be given retroactive effect.

In a preliminary ruling of 24 December 2021, ECLI:NL:HR:2021:1974, the Supreme Court ruled on the consequences of the corona pandemic for rents of business premises. In that decision, the court answered the third question posed as follows:

"The answer to the third preliminary question is as follows. The circumstance that, as a result of government measures in connection with the corona pandemic, a lessee that depends on the arrival of the public for its turnover cannot operate the 290 business premises leased by it, or can operate them only to a minor extent, is, in the case of a lease concluded before 15 March 2020, unless there are concrete indications to the contrary, an unforeseen circumstance within the meaning of Section 6:258 of the Civil Code on the basis of which the court may adjust the lease by reducing the rent."

In line with that answer, the court of appeal held that the circumstance that the trade fair had been cancelled in March 2020 due to government measures related to the corona pandemic, so that the client had not been able to use the services agreed with the contractor and the contractor had also not been able to provide those services, was an unforeseen circumstance as referred to in Section 6:258 of the Civil Code. There was therefore a basis to change the consequences of the contract or to dissolve the agreement in whole or in part.

With regard to the disadvantage caused by the government measures in connection with the corona pandemic, the Supreme Court had considered, among other things, the following in the said judgment:

"3.3.2 Disadvantage caused by the circumstance referred to above in 3.2.4 is, as a rule, neither within the tenant's nor the landlord's sphere of risk. The distortion of the value ratio between the mutual performance is therefore, in principle, best overcome by dividing this disadvantage - insofar as not already compensated by the financial support of the government to the tenant in the form of the Contribution to Fixed Charges (hereinafter: TVL) - equally between the landlord and the tenant."

The court saw reason to follow that judgment in the present case. The disadvantage that had arisen in this case as a result of the unforeseen circumstance of the corona pandemic was neither within the principal's nor the contractor's sphere of risk. Therefore, the court considered it appropriate in this case, as in cases of lease of catering premises, to divide the loss equally between them.

The court further concluded that since the contractor had been unable to provide the agreed services as a result of the corona pandemic and had not yet incurred any costs to provide those services, nor had it claimed anything in terms of lost profit, while the client had been unable to take the agreed services as a result of the corona pandemic, the contract had lost its meaning entirely. According to the court, the present case differed from lease issues in which corona issues are involved. In lease issues, the landlord did perform a service, namely making the premises available to the tenant. In the present case, the contractor had not performed the agreed performance at all (and had not incurred any costs in doing so). The court therefore dissolved the contract in full and with retrospective effect, applying Section 6:258(1) of the Civil Code. The claim for payment of the agreed price was thus dismissed.

Do you have any questions or would you like to know more about the possibilities of dissolving a lease or other contract? If so, please contact one of our lawyers without obligation. We will be happy to assist you!

SPEE advocaten & mediation Maastricht

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