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The legal Vaccine against Covid: Rebus sic standibus rule

 

The legal Vaccine against Covid: Rebus sic standibus rule.

 

The Covid-19 did not come alone but plenty of effects and consequences. We are dealing not only with a health global crisis, but also to some extent a global legal earthquake. The Covid impact on the legal field has several approaches. From Company Law point of view there have been some regulations to enable the Company Meetings on line at least of the concerned period. From Employment Law’s perspective new regulations about home office work appear suddenly approved. From Tax point of view governments or some of them has adjusted the tax law to the Covid circumstances by granting some benefits. But, what is the impact on contractual law?

The economic and business crisis differ from country to country, however the similarities are huge. In general terms, Law should give a solution to any conflict that shall come up due to Covid crisis. Hotels could not welcome clients but must pay rent. Airlines’ planes could not take off but must pay the staff. Shops have been submitted to opening restrictions that must face up huge payment obligations in spite of remaining closed. Who is going to pay the bill? In some countries governments will grant financial support, nevertheless in many cases public subsidies will not be available.

Covid crisis emerged in the normal contractual life not only as an unexpected fact but also as a circumstance that would have made parties not to sign the binding contracts that now cannot be fulfilled. In some cases depending on the nature of the obligations and legal provisions it may apply the Force Majeur rule as long as the fulfilment of the contractual obligations has become absolutely impossible. However, Force majeur seems not to be generally applicable to Covid contractual issues.

In this economic, social and legal context it has been recovered from our wise Roman jurists an apparently magical solution: Rebus sic standibus rule. What is that? According to this rule in general terms, parties have no the obligation to fulfil their contractual obligations if unexpected and unforeseeable events occur based on what they would not have accept the agreement if they would have known the events in the moment of acceptance.

The legal systems have followed different approaches about this clause. Some of them, such as Italy and Germany have some provisions that have included in essence the main elements of this rebus sic standibus clause with some particularities. So, the article 313 of German Civil Code – Bürgerliche Gesetzbuch– foresees the “interference with the basis of the transaction rule”- Störung der Geschäftsgrundlage. This article grants the right to modification or termination based on the frustration of the obligation purpose, what is submitted however to special prerequisites. In Italy, article 1467 of the Italian civil code refers to the excessive encumbrance in contracts with corresponding obligations. In case of an extraordinary and unpredictable event the party obliged to perform can demand the termination of the contract if its fulfilment is unduly onerous. However, other countries such as Spanish Law do not have a clear rule in his legislation, but a development in case law over the years.

This Rebus sic standibus clause implies an exit gate to the relevant legal principle Pacta sunt servanda. Agreements must be kept. So the Rebus sic standibus clauses can jeopardize the legal certainty that it is so necessary for business and private transactions.

On the one hand, there is a general consensus that the Rebus sic standibus clause cannot be applied without submission to some limitations, but on the other hand it must be considered in some circumstances where the application of the contract can lead to a clearly unfair imbalance between parties. In this regard, Courts may have in countries such as Spain an opportunity to accept use the rebus sic standibus as a legal vaccine to the situations where Covid lead to circumstances according to the nature of the obligations where parties should have the right harmless quit the contract or not to fulfil them in the same terms as it was originally agreed.

In Spain the High Supreme Court had in general terms a tradition to reject the application of the Rebus sic standibus clause. However, the financial, economic crisis of 2007-2008 offered an opportunity to the High Supreme Court to accept its limited application in some judgements (30.6.2014 and 15.10.2014).

Nowadays, the challenge for the Courts not only in Spain is to see the Covid circumstances as a ground for the application of the Rebus sic standibus clause. In the first instance Courts there have already been some decisions about this topic, and some of them are clearly accepting the application of this clause. For the final decision of the High Court we have to wait some time.

Rebus sic standibus might be the vaccine, the solution to many legal contractual conflicts. However, it is to note that there is not a global general legal vaccine, that is to say solution, valid for all contract as it expected to happen with vaccine for human beings. Court shall consider the circumstances of each specific case to evaluate whether the Rebus sic standibus can be applicable or not. No doubt, Lawyers shall play a relevant role in these legal conflicts, seeking for the best solution as good doctors even without a vaccine provided by Governments or Parliaments!

 

Barcelona, January 2020

David Elvira Benito

www.bmk.es

 

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