The spread of the COVID-19 pandemic into Hungary has had a significant impact on most sectors of the economy. Numerous events have been cancelled, the availability of certain products and services has become limited, and many market participants are facing situations where their suppliers and other partners are, in the better case, only able to perform differently from what was previously agreed, and in the worse case, unable to perform at all. In this context, companies that are unable to perform, or are only able to perform to a limited extent, often invoke force majeure as a final argument.
Contracts often list events such as war, rebellion, terrorist acts, strikes, accidents, fire, blockade, flood, natural disasters, or severe disruptions in energy supply as examples of force majeure. In terms of legal effect, such clauses almost always exempt the party from liability for breach of contract arising from these extreme circumstances. In order to regulate the business relationship between the parties, such clauses may also set out communication rules and procedural requirements.
It must be emphasized, however, that although force majeure is a legal concept known since ancient times and is also frequently used in everyday language as a kind of general escape route, our current civil law code does not recognize this concept under this name. Not under the term force majeure, but the Civil Code does allow a party in breach of contract to be exempted from the legal consequences of breaching its contractual obligations if the following conditions are met:
- the breach of contract was caused by a circumstance beyond the party’s control, which was unforeseeable at the time the contract was concluded; and
- the party could not reasonably have been expected to avoid that circumstance or prevent the damage.
The impossibility of contractual performance must be treated separately from this. Within this category, in the current situation, the most relevant case appears to be where an external circumstance creates an objective obstacle to the performance of the contract, for which neither party is responsible and which is not attributable to anyone’s fault.
This cause does not necessarily have to constitute a physical obstacle, as Hungarian court practice also accepts prohibitive legal rules as such obstacles. The government decree ordering the current state of danger contains provisions that may potentially qualify as such obstacles. For example, the prohibition of events attended by more than 500 people and held in non-enclosed venues may have such an effect.
In respect of a service that has become impossible in this way, neither contracting party is liable to pay damages to the other. However, the consideration for services already performed before the impossibility occurred must be paid, while any consideration already paid must be refunded if no service can be provided in return.
It is therefore worth keeping in mind that not every failure to perform can be mechanically linked to a particular legal consequence. In each of the cases described above, the actual and specific legal consequences, as well as the possible availability of exemption from liability, must always be assessed individually, by examining the situation as a whole and considering all relevant circumstances.