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The impact of COVID-19 outbreak on international arbitration

| COVID-19 / News | International Arbitration

Iñigo Rodríguez-Sastre and Elena Sevila analyse the impact of the COVID-19 outbreak on international arbitration


The impact of the Covid-19 outbreak on international trade relations seems beyond doubt. Therefore, it is worth analysing which legal tools the parties to an international contract may allege in Civil Law Systems when one of the contractual parties does not comply with its obligations.

2.- Definition and applicability of the “Force Majeure” excuse in Civil Law Systems

2.1.- Terms and Conditions established in the contract and Governing Law Clauses

In order to determine the solutions that are applicable to the contingencies occurring in a contractual relationship on the occasion of Covid-19, the terms and conditions expressly agreed by the parties to the contract in relation to extraordinary situations must always be taken into account first, based on the grounds of the pacta sunt servanda principle. In order to determine the interpretation and effects of the Force Majeure excuse between the parties to a contract, governing law clauses should be paid particular attention as these will establish how we should interpret this excuse.

2.3.- The Force Majeure excuse in Civil Law Systems

A “Force Majeure” clause consists of a standard clause found in contracts in which a party will not be held liable for any failure or delay in the performance of the agreement for the period that its failure or delay is beyond the party’s reasonable control, when the event of force majeure materially affects the performance of any of its obligations under the agreement and could not reasonably have been foreseen or provided for. However, the party will not be excused for a failure or delay resulting only from general economic conditions or other general market effects.

In order for the contractual parties to trigger the Force Majeure clause, certain requirements must be met:

  1. it must be a wholly unforeseeable circumstance at the time of signing the contract (“ad imposibilia nulla obligation est”);
  2. the referred circumstance itself must prevent contractual performance;
  3. the event must be an extraneous cause not attributable to the non-performing party;
  4. there must be a direct causal link between the event and non-compliance; and,
  5. the unforeseeable event arose after the contract was entered into.

Finally, it is also important to mention that one of the elements to be taken into account when approaching this type of situation is good faith during the execution stage of the contract, as it will be a fundamental element in the assessment of the situation by our judges.

If the above requisites are met, the consequences are certain. They will normally lead to suspension, renegotiation, and/or termination of the contract if the non-complying party proves that performance has been rendered impossible by an insurmountable impediment arising after the conclusion of the contract. Nevertheless, it should be taken into consideration that a case by case analysis is crucial under these case based scenarios.

2.4. Rebus sic stantibus clause

The rebus sic stantibus clause allows for modification of the obligations in a contract (and even for termination in some cases) when, due to notable circumstances, the economic balance of the contract is broken and its fulfilment turns out to be impossible or very burdensome for one of the parties.

For the rebus sic stantibus clause to be triggered, the following requisites must concur:

  1. an extraordinary, unforeseeable and non-attributable alteration of the circumstances at the moment that duties are to be fulfilled, as compared with the circumstances existing at the time of signing the contract;
  2. an exorbitant disparity, beyond any calculation, between the contractual obligations of the parties; and,
  3. there is no other remedy for solving the problem ‒subsidiary application.‒.

 Bearing in mind that the Covid-19 outbreak might be considered as an unforeseeable act by Arbitral Tribunals, it might permit activation of the rebus sic stantibus clause, as long as one of the parties proves the disparity of the contractual obligations. Its inherent consequences could consist of the reestablishment of the contractual balance between the parties. Finally, when negotiating, it is of utmost importance that the parties specify the grounds for application of the rebus sic stantibus clause.

2.5. The Force Majeure excuse under the CISG United Nations Convention on Contracts for the International Sale of Goods and UNIDROIT Principles

The occurrence of an extraordinary event outside the debtor's control has been enshrined in various legal instruments governing international contracts as a valid excuse for excluding liability for damages.

On the one hand, Section 79 of the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) encompasses the elements of force majeure as a concept, i.e. the unforeseen nature of the event, its inevitability and being unconnected with the debtor.

On the other hand, Section 7.1.7 of the UNIDROIT Principles also contains a definition of Force Majeure. Nevertheless, the definition of force majeure contained therein is necessarily of a rather general nature.

The most noticeable difference between Section 79 CISG and Section 7.1.7 UNIDROIT Principles is the absence of a counterpart to Art. 79(2) CISG in the UNIDROIT Principles. This omission reflects the gap between the assumed function that this paragraph was to take in the mind of its drafters and the misunderstandings and complexities inherent in the distinction of excuses based on the failure of a third person to perform.

Finally, we may also ascertain that the UNIDROIT Principles contain provisions on hardship, in contrast to CISG.

2.6 Summary of “Force Majeure” Case Law in International Arbitration

Hamburg Chamber of Commerce’s Arbitral Tribunal issued an award on 21 March 1996[1] in which it applied Section 79 CISG and concluded that, as a general rule, difficulties in delivery attributable to financial problems on the part of the seller or the seller's suppliers cannot be regarded as an impediment that is beyond the seller's control, as they fall within the scope of the risk assumed by the seller.

In the International Chamber of Commerce (“ICC”) Case number 16369 of 2011 (Buyer (Switzerland) v Seller (Kosovo))[2] the Sole Arbitrator considered that a radical change in market conditions was not to be assumed by either one of the contractual parties, but rather constituted a shared risk. The Sole Arbitrator established that the agreed price formula with certain fixed parameters and a number of variables, including increases and decreases in the treatment charge as a function of above average and below-average settlement prices, in the Tribunal's view reflected the Parties' understanding that market shocks were not to be assumed by either one of them but rather constituted a shared risk.

The Arbitral Tribunal of Mexico’s Arbitration Centre rendered an award in the so called “El Niño” Case[3], in which it considered that weather events did not meet all the criteria set out in Article 7. 1. 7(1) of the UNIDROIT Principles. Indeed, the storms and floods were beyond the control of the defendant, but their occurrence could not be considered unpredictable by the defendant who, in the course of his long activity in agriculture, had experienced similar events several times. In addition, the Respondent did not give notice to the Complainant of these events and their impact on his ability to comply as required by the same Article 7. 1. 7(3)

2.7 An Example of a Force Majeure Clause: ICC Force Majeure Clause 2003

The ICC Force Majeure Clause 2003[4]  proposes a clear and complete stipulation that will provide greater security for international contractual parties.

The Clause has three main purposes: (i) first, it is intended that the new clause should assist the largest possible number of users; (ii) second, it is intended to give the list of events a function which goes beyond the merely illustrative, such that a party would find it easier to invoke the clause if it could point towards one of the listed events; (iii) third, it was important not to afford a party invoking a listed event too much protection.

2.8 Impact of Coronavirus as a “Force Majeure Excuse” on future International Arbitration disputes

It is beyond dispute that the number of international arbitrations will increase due to the fact that contracts may not have included any Force Majeure clauses, or, if so, they might be incomplete.

Additionally, the sharp drops that worldwide market stocks are suffering and will apparently continue to suffer in the near future, will mean that parties to international contracts will advocate that arbitrators declare that Covid-19 is a Force Majeure event. As the English media have already reported[5], China’s Council for the Promotion of International Trade has already issued 4,811 force majeure certificates due to the declared pandemic. These documents “will help entities claiming against another party in the Chinese domestic markets; most claims will not hold up internationally”.

Perhaps, the new Covid-19 situation will lead to “e-arbitration”, in which hearings might be held through electronic devices and documents submitted only through electronic means of communication.

3. Impact of Coronavirus On International Arbitration Institutions: ¿Which measures have the main arbitral institutions adopted?

The main international and national arbitral institutions are taking measures in order to: (i) reduce the impact that Covid-19 will have on arbitral proceedings; and, (ii) protect the safety of the people who may be involved in an arbitration proceeding.

Internationally speaking, the ICC Institution is strongly advising that all communications with the Secretariat of the ICC Court or ICC ADR centre be conducted by email. For Pending Proceedings, the ICC indicates that although the Secretariat has advised that all communications be conducted by email, if parties or arbitrators need to send any correspondences (including awards and ADR decisions) to the Secretariat, they should promptly inform the case management team ahead of dispatch. Hearings and other meetings scheduled to take place at the ICC Hearing Centre in Paris until 13th April 2020 have been postponed or cancelled

The main ideas that the American Arbitration Association (“AAA”) has translated to its public are the following: (i) The AAA remains active and operational. Nevertheless, no hearings will take place in AAA hearing facilities from 20th March until 17th April 2020; and, (ii) in cities where governmental authorities have shut down activities, AAA’s physical offices will be closed immediately.

In a national level, the Civil and Commercial Court of Arbitration (“CIMA”), based in Madrid, released a communication on the 16th of March 2020[6], which its main points may be summarized as following: (i) all Court’s staff is working on remote; (ii) in-person hearings where production of evidence was scheduled are suspended; (iii) other meetings or hearings can be celebrated by phone if the parties ask for it; (iv) time limits and other deadlines are all suspended.

The adopted measures will, in most cases, disrupt the ordinary course of the arbitral proceedings and will, without doubt, require particular attention from lawyers and arbitrators.

4.- Practical Approach

COVID-19 is presenting daunting challenges to enterprises which are currently feeling overwhelmed due to the fact that corporations are uncertain on how to manage the Covid-19 contractual challenge.

Therefore, we recommend that enterprises follow the following recommendations:

  • Carry out a thorough analysis of the contractual clauses together with a lawyer, in order to clarify current and potential impacts in the contractual relationship.
  • Analyse the possibility of triggering Force Majeure/Hardship clauses, even according to the law governing the contract.
  • Initiate conversations with your counter-party. In doing so, it is important to keep a written record of all dialogue maintained and all decisions taken by any of the parties. In this way, parties will be generating future means of evidence.
  • The party alleging non-compliance with its obligations should expressly indicate in the communication in question that this has because of the Covid-19 outbreak, considering it to be a Force Majeure event.
  • If a Force Majeure clause makes it necessary to notify the counterparty in order to be invoked, undertakings should follow this requirement scrupulously.
  • In any case, seek legal advice to ensure you do not compromise your own position.

You can see the article at Diario La Ley



[3] Arbitral Award issued on the 30th November 2006 – Mexico’s Arbitration Centre (“CAM”).  (




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