Logistics Contracts amid Covid-19 crisis: Force majeure? "Rebus sic stantibus"?

The provision of logistics services is experiencing intense days. Trade and distribution in recent decades has intensified and globalized, thanks to logistics, as a comprehensive pivotal service around which the supply chain functions, that includes various types of activities also in legal terms, and our law treats as one of the so-called atypical, non-standard contracts sine does not provide for a comprehensive regulation of a logistics contract” as such (unlike sale and purchase, loan, or lease contracts).

As a “complex” contract or set of contracts, of diverse legal nature, it comprises several contracts, mainly, warehousing or deposit, transport services, packaging, stock management, quality control, testing, order preparation, customs procedures, reverse logistics, etc.

The current COVID-19 crisis requires maximizing efficiency in processes, which is precisely the raison d’être of logistics which now contributes to sustaining the life of our country at such critical moments. So now the logistics sector is affected, on the one side by the restrictions to which its clients and / or suppliers are subjected (eg “non-essential activities” are temporarily banned or put on hold) and on the other, by the sudden increase in workload, e.g. managing essential supplies, or even under requisition, with sudden and profound changes.

Interpreting and fulfilling Contract or claiming for contract performance is not always peaceful – in fact, the remedy when the parties fail to do so in mutual agreement or “meeting of the minds” is going to the court.

Our Law system lacks comprehensive regulation of logistics services and among the few references to logistics as such we may point out Law 15/2009 of November 11, on the contract of road transport of goods according to which, when the obligation to transport goods in In the framework of a logistics operation with broader content, the rights, obligations and liabilities related to said transport are to be governed by the provisions of this [Transport] law.

Thus, in a logistics contract, each legally differentiated relationship will be resolved according to its own regulation: that of transport, that of deposit, that of the provision of services, etc. which makes comprehensive solutions difficult when conflicts arise in logistics contracts.

The situation may become more difficult if the contractors have not formalized the provision of logistics in one or several written contracts, coordinated with each other, or if a client has entrusted different logistics tasks to various logistics operators (some transport, others storage, etc.), not coordinated with each other: malfunctions , overlapping, “blind” areas not covered .. due to the lack of a comprehensive contractual architecture. And even more, complication can be added when, international elements – parties, place of supply, or the legislation or forum of the contract are foreign.

In the field of private, civil-commercial contractual law, after the Spanish Government declaring the state of emergency causing serious disruptions, concepts such as “impossibility”, “unpredictability”, “force majeure”, etc. are invoked, so what is right?.

As a first clue, in the labor field, the Government regulated in RD-Law 8/2020 of March 17, temporary layoffs giving differentiated treatment according to whether they are based on force majeure causes or those in the standard legal provisions – those for economic, technical, organizational or production reasons – . However, it did not include criteria to determine in which cases a company can validly avail itself of the temporary layoff route due to force majeure, but it has been in subsequent RD-Law 9/2020 of March 27 that its D.A. 2 nd that establishes a sanctioning regime, among others, for companies that file these labor measures when “they are not necessary or do not have sufficient connection with the cause originating them, …” – an indication of how the Spanish administration will proceed. But labor field is not the subject of this release.

With all due caution, in view of the novelty of the situation, even for the courts, we will try to outline these concepts in the private, civil-commercial sphere as mechanisms of exception to the rule of obligatory compliance with obligations, -arts. 1.091 and 1.258 of the Civil Code- (“pacta sunt servanda”) when the obligor does not comply for a cause not attributable to him:

  1. Force majeure – supervening impossibility

The Civil Code provides that, apart from the cases expressly mentioned in the law, and those in which the obligation so declares, no one is liable for those events that could not have been foreseen or that, foreseen, were inevitable (art. 1105), and based on this our jurisprudence has developed our doctrine on “force majeure” which, in turn, is recognizes two categories, according to the nature of the non-performed obligations:

  1. i) Obligations to deliver something: the obligation to deliver a certain thing when it is lost or destroyed without the fault of the debtor and before it has become in default will be extinguished;

Here it should be pointed out that when it comes to money delivery, i.e., monetary obligations, of payment of money are not considered delivery of a certain thing because they are generic items: money is fungible. The pecuniary debts are not covered by the exoneration by force majeure, since, for obvious reasons, they are subject to the risk principle or “perpetuatio obligationis” that is to say the perpetuation or permanence of the obligation after it has expired – base of the default of the defaulting debtor, until debtor performs-. Another thing will be – depending on how the situation evolves – in certain cases, it may be acceptable to allow for a suspension or temporary delay in compliance.

  1. ii) Obligations to do something (services): the debtor is released in the obligations to do when the provision is legally or physically impossible – in validly constituted and current obligations – and said impossibility arises before the date of compliance of the debtor or expiration of the term.

2. “Rebus sic stantibus” clause:

It is an elaboration of jurisprudential, court doctrine highly restrictive, that emerged amid the financial crisis of 2008. So, the rule of the doctrine “pacta sunt servanda, rebus sic stantibus” does not extinguish the obligation but rather corrects or moderates applying the principle of protection of legal acts in law (e.g. article 1,284 Cc.), and has strict requisites as to the events triggering the situation that must be:

  • Not caused by any of the parties, (neither directly nor indirectly).
  • extraordinary,
  • Inevitable (not attributable or controllable by the debtor)
  • Unpredictable (there was no way to foresee them – if not, the debtor should have foreseen them and prepare better – this varies according to the debtor’s profile – one cannot expect the same foresight capacity from a professional as from a private individual or a consumer).
  • They directly affect the contractual relationship with a break in the balance of mutual benefits and hardship, thus causing the purpose of the contract to be frustrated.

These mechanisms or valves of exception to the general obligation of compliance are of restrictive application, since a generalized application would leave in the hands of the courts the determination of key elements inherent to the freedom of covenant principle such as the object, consideration, term, etc.: The Supreme Court also resolves that economic crisis by itself is not a sufficient cause for extinction or price or rent reduction.

3. Collaborative approach, a necessary tool.

The logistics contract, due to its nature and complexity, is one of the so-called “collaborative” ones: the success of the contract requires special cooperation between the service provider and the client.

Before taking a contract to court – due to the uncertain result, costs and time especially, due to the foreseeable overload of litigation that the courts are expected to suffer shortly-, and if the parties are acting in good faith, In general, it will be in all parties’ interest to find a negotiated solution to adapt the terms of the contract to the new situation, whether temporary, or more far-reaching, in short, adapting to a new reality that is imposed on everyone.

Show Comments

Leave a Reply

Your email address will not be published. Required fields are marked *