Péter Gyimesi

Apart from all its other nasty effects, the coronavirus has shown how unprepared lawyers are. Not long after the outbreak of the virus, it became all too obvious that the “force majeure” clauses traditionally worded along Anglo-Saxon lines were not worth the paper they were written on: they simply weren’t suitable for addressing the kind of problems that were arising in the new situation. Based on what we’ve learnt over the past few months, however, it’s now a lot clearer how a “Covid-proof” contract should be drawn up.

How should we write a “Covid clause”?

Can a commercial tenant ask for a rent reduction if its opening hours are restricted? Can we get an extension of our payments if complications arise in the supply chain? Ever since March, lawyers in their thousands have been searching for answers as to what the legal consequences are if, due to the pandemic, someone is unable to meet its obligations under a contract or if doing so would place a “disproportionate” burden on him. Neither the provisions of the Civil Code nor the various Anglo-Saxon-based force majeure clauses gave a clear pointer in this regard. Not surprisingly, there are many disputes currently up before the courts where these questions are awaiting answers. 

However, now that we have a better grasp of the likely consequences of the situation caused by the coronavirus, we can be more careful and include a specific “Covid clause” in our contract. But what should such a clause contain?

The white list 

The parties should first determine the circumstances caused by Covid that do not affect the performance of their contract. What the parties wish to put in this basket is, essentially, a business decision. It’s worth addressing in this list such impacts of the situation that the parties could foresee. These may include, for example, the general economic downturn, general restrictions on physical entry to or exit from a country, or restrictions on retail opening hours. The parties may be willing to expressly nominate certain risks in this category. Thus, for example, a contract may state that the parties will, up to a certain level, accept the change in the price of the service being subject of the contract. If these circumstances occur, then the parties may continue to insist on the performance of the contract. 

… and the blacklist 

At the same time, the parties should also consider those circumstances that may exempt the other party – either temporarily or permanently – from its obligations. Such factors could fall into this category that directly and personally affect the operations of one of the parties – for instance if the individuals contributing to the performance of the contract are quarantined or they are made subject 

to other official measures. The blacklist may also include cases where an official restriction is imposed on the contracted service. Certain changes in the general market circumstances having a major unforeseen impact on the economy as a whole – e.g. EUR/HUF exchange rate exceeds 400 – may also fall into this category. 

And what’s in the grey zone? 

Of course, even if a Covid clause is carefully worded, circumstances may arise that were not foreseen by the parties and were therefore not specifically addressed in the contract. Even if that happens, it’s not the end of the world. The circumstances that the parties have specified in the above two categories create, in themselves, a good indication of their share of the risks. On this basis it is possible to argue with a fair degree of certainty which list the parties would have placed a particular event in, had they known it might occur. For this reason, setting out the white and the black list can also be extremely useful for addressing any unforeseen events that occur.