Contract law in times of corona and other sanitary crises

The first speaker was prof. Marco Loos (UvA). He discussed two very similar cases decided by the same Dutch ADR body (Geschillencommissie Reizen) on 22 respectively 30 September 2020 that surprisingly had two different outcomes. In the first case a 20 day-trip to Surinam (roundtrip), was Interrupted after 8 days by tour operator due to the risk of COVID. The Tour operator repatriated consumer, returned a sum of €300 to the consumer and gave him voucher of € 300. The consumer was not satisfied and brought his case before the ADR body dealing with travel issues. The ADR body decided that consumer was entitled to a price reduction for period with which the trip was shortened because of lack of conformity (art. 14(1)) between what the consumer got and what he had contracted for. The consumer was returned a sum of € 780.

The second case concerned a 23 day-trip to USA (roundtrip with camper), price € 2.018,45 that was interrupted after 13 days upon advice of tour operator. The tour operater repatriated the consumer, but refused to pay an additional sum of € 366 extra for new airline tickets. In this case the ADR body decided that the lack of conformity was the result of unforeseen circumstances and was therefore not attributable to tour operator. Consequently, the consumer was not entitled to claim compensation for new airlines tickets.

Professor Loos then explained the Dutch rules on package travel, based on the corresponding EU Directive. Since these rules deal exhaustively with the legal consequences of non-conformity of package travel contracts including when this results from unforeseen circumstances, there is according to prof. Loos no room for the application of the rules of national law dealing with unforeseen circumstances. The second decision of the ADR body therefore is not in line with the applicable law.

The second speaker, Bob Jennekes, addressed the impact of the COVID -19 crisis on export credit insurance. Export credit insurance protects exporting companies against the risk that a foreign buyer fails to pay. In the first place, export credit insurances are offered by private insurance companies. However, in high value, high risk cases, private insurance companies may not be willing to insure the risks. In such cases, the exporter may turn to a Dutch State facility for export credit insurance. Before  the crisis, export credit insurance by state facilities were regarded with suspicion because they are akin to state aid.

During the pandemic, private credit insurance companies, tended to exclude pandemic related loss from coverage. However, exporters that try to shift the risk of pandemic related loss to their own clients and ask for upfront payment, put themselves outside the market. A solution could be found in relaxing the conditions for obtaining state guarantees. However, this is not without risk. The public debt may become unsustainable. According to Mr. Jennekes, an EU export credit scheme might be the best solution.

The third speaker, Harry Slachmuylders, pointed out that the COVID-19 crisis revealed systemic risks of our societies and our economic system. While government responses to the crisis firstly focused on emergency healthcare and economic rescue measures, attention is now turning to the economic recovery after Covid-19. Mr. Slachmuylders then asked the question whether the circular economy can play a role in the economic recovery. The idea of a circular economy is often linked to what is called “Servitisation”, “a process of creating value by adding services to products” (Vandermerwe & Rada) and replacing contracts for the transfer of property by contracts for services. Instead of buying a car, customers can buy transportation services, consisting for example in the use of car with or without a driver. Mr. Schlachmuylders rightly pointed out that servitisation may contribute to a circular economy, but that is not necessarily the case. Much depends on the behaviour of the providers and users of the services and the incentives included in the provisions of the services contracts. Servitisation may encourage manufacturers (who retain ownership) to extend the lifespan of products and carry out preventive maintenance. It may also encourage customers to make more efficient use of products and materials. However, it may also encourage customers to be less careful when using goods which are not theirs, or they may decide to switch quicker to newer products since they only pay for the use of the product and did not pay the full price to obtain ownership. Once more, it depends on the terms of the contract, how easy and how costly it will be to terminate a contract for the use of one good and switch to the use of another good. The problem is however, that while the terms of these servitisation contracts are extremely important, the current legal framework does not contain a clear and detailed set of rules for such contracts. Even their qualification is problematic. Contracts for the use of a good will generally qualify as rental contracts. Things become more complicated when services are added to the use of a good and it is to be determined which element prevails. Moreover, even when it is decided that the contract is rental contract or a contract for works or services, there is only a limited number of mandatory legal provisions that applies. This leads to a lot of contractual freedom, which is likely to be detrimental to the weaker party in the contractual relationship. How to deal with this problem is to be further investigated. Regulation may be a solution, self-regulation is also suggested and there may even be other solutions.

The fourth speaker, Vanessa Mak, examined the effects and ramifications of the COVID-19 crisis for long-term contracts. Looking at both long-term consumer and business contracts and taking examples such as gym subscriptions and rental agreements, the question as to which remedies such parties may be able to invoke (and the limitations thereto) was addressed. This led to a discussion in particular of the doctrines of force majeure and change of circumstances, as well as vitiating factors like fraud, misleading advertising and duress. In terms of the long-term implications for contract law, it is possible that existing contact law doctrines may be sufficient to address the challenges arising from COVID-19; however, there may also be the need for novel doctrines to be developed, such as the concept of social force majeure. In addition, or alternatively, other legislative solutions might be considered, for instance permitting the use of voucher schemes, or introducing moratoria on consumer and business debts. This will no doubt be a discussion that gathers pace and importance in the weeks and months ahead.

The fifth and final speaker, Stephan Rammeloo, then proceeded to examine the challenges and responses to the COVID-19 crisis in the area of private international law (PIL), through the lens of the three fundamental PIL questions of regulation of cross-border private law relationships by means of rules on jurisdiction, conflict rules and recognition and enforcement of foreign judgments. The focus in this respect was on contracts involving the physical attendance of contracting parties, ranging from employment and tenancy contracts to concerts and conferences, and the ramifications of both the Rome I and Rome II Regulations. Ultimately, this gave rise to a debate as to whether PIL was falling short in the current crisis, and what lessons are to be learned from this in view of other crises that have arisen in recent times, or indeed currently persist, such as the latest financial crisis, and climate change, respectively.