This question has undoubtedly been asked by companies during this time when the entire word and companies have been affected in one way or another by the Covid- 19 Pandemic.
Definitely, this is a difficult question to answer in a general manner, since depending on the particular case the answer may change.
For this purpose, it is important to remember that our Civil Code establishes that “the obligations that arise from contracts have the force of law between the contracting parties, and must be complied in accordance with the same” (article 1896), and in the same sense, it is also established that “every contract legally entered into is a law for the contracting parties, and cannot be invalidated except by their mutual consent or for legal reasons (Article 2479).
Therefore and as a consequence of the pandemic that has affected contractual relationships in one way or another, I consider that in the contracts governed by Nicaraguan Law, the figure of unforeseeable circumstances or force majeure is not a sufficient argument to be exempt from liability in contractual obligations, nor is it automatic.
This is why I consider that the mere existence of Covid-19 is not enough to justify the breach of a contractual obligation especially in the case of Nicaragua because to this date the government has not implemented any kind of measures or restrictions that could be alleged by the party that not fulfill its obligations.
It is important to note that our Civil Code has not conceptualized the fortuitous event and force majeure and in some articles it refers to these as a single concept, however, we can infer that in the case of Nicaragua, force majeure is related to events in which men intervenes as wars, riots, strikes, among others and cannot be avoided; regarding to the fortuitous event it is the intervention of forces of nature, such as earthquakes, tidal waves, hurricanes, epidemics which cannot be foreseen.
Notwithstanding the foregoing, the Civil Code in its article 1864 establishes that outside of the cases expressly indicated in the law, the debtor will not be responsible for the damages and interests caused to the creditor for breach of his obligations, when these result from fortuitous event or force majeure, unless the debtor has assumed the consequences of the fortuitous event or force majeure, or it has occurred through his fault, or has already been constituted in breach. In other words, the law gives us the guideline of when said exemption can be claimed, being the following:
- The debtor has not taken responsibility for the consequences of the fortuitous event or force majeure.
- That it happened because of the debtor.
- That at the time of the fortuitous event or force majeure it is already in default, which has not been motivated by events that could not have been foreseen, or that, foreseen were inevitable.
For the fortuitous event, the debtor has to prove the fortuitous event that he alleges. In other words, the emergency must be proven to affect the contract or obligation in question that makes its fulfillment impossible.
For this reason, I consider that is necessary to review the particular contract and what was agreed with respect to the fortuitous event and force majeure, since in the event that it has been agreed that one of the parties will assume it, the exemption cannot be alleged.
On the other hand, and as an example in the case of lease contracts, our law establishes that if due to unforeseeable circumstances or force majeure the tenant is totally prevented from using the leased property, no payment should be made for the duration of the impediment. That is, in the context in which we live, if, for example, a space is rented in a shopping center and the shopping center decides to close, the tenants, not being able to use the leased premises, could claim a fortuitous event and request the reduction of the rental price in proportion to the days in which the premises have not been used.
To this date in a construction contract, for example, fortuitous events and force majeure could not be alleged, since to date there are no mobility restrictions decreed by the state that make it impossible to comply with the obligation, since it is no enough that it becomes more complicated or expensive to comply with.
For this it is recommended that companies proceed to review the contracts that are currently in force in order to determine if a fortuitous event and force majeure clause was agreed and, where appropriate, the procedure that was established for these cases, in order to have clarity on this regard and the actions to be taken if it becomes applicable, for example, if there is the possibility of suspending the obligations contracted without responsibility for one or the parties; the actions that each of the parties must exercise when the fortuitous event and force majeure occurs; the possible duration of the event; the possibility of definitively terminating the contract or renegotiating it if the parties agree.
Also, it is important to review the contracts in order to determine which ones could be terminated in advance if necessary without incurring in default or penalties.
As a last recommendation in the event that contractual breach is unavoidable and the contract agreed between the parties does not allow an early exit from it, I consider that the most prudent mechanism is to approach the other party to jointly assess the situation and deal with to look for options to avoid possible breaches or to restructure the contract or obligation. Remember that any agreement that the parties reach must always be duly documented in writing.