COVID-19 in Latin America: Ongoing Considerations for Force Majeure
For more than 18 months, COVID-19 has had a relentless impact on businesses and trade relationships in Latin America. In an effort to prevent the spread of the virus, governments in the region have put in place closures, phased reopening and several other measures. With the recent spread of the Delta variant and vaccination rates remaining low compared to the United States, Canada and much of Europe, the region is expected to continue to experience epidemics, and governments may be forced to ” impose new restrictions related to COVID.
Although it has been more than a year and a half since the World Health Organization declared the COVID-19 outbreak a pandemic, its effects on contract performance – and non-performance – continue. As long as Latin American countries struggle to reopen and their governments continue to implement and enforce restrictions, businesses in the region could continue to experience disruption.
As in other parts of the world, the question of whether the COVID-19 pandemic constitutes force majeure is being tested in Latin America. In Mexico, for example, the state-owned oil company PEMEX declared in April 2020 a force majeure on fuel imports from its business arm PMI Comercio Internacional. Likewise, in January 2021, Mexican national airline Aeromexico called on Mexican labor authorities to terminate collective agreements with the ASPA and ASSA unions, citing force majeure.
As COVID-19-related force majeure claims – and the parties’ inability to comply with the terms of the contract as a result – begin to lead to litigation, it is too early to predict the overall results. As each Latin American jurisdiction offers distinct contractual and other protections, has taken different measures in response to the pandemic, and faces unique political and economic challenges, there is still uncertainty as to whether parties will be able to respond to the pandemic. successfully invoke force majeure or other provisions. when the performance of a contractual obligation is prevented or significantly compromised by measures related to COVID-19.
What companies should think about when invoking or challenging force majeure in Latin America
In dealing with past, present and potentially future delays resulting from past, current or new restrictions related to COVID-19 in the Latin American region, the parties will assess the application of contractual and legal force majeure or other provisions. to excuse interruptions and delays or extend turnaround time, as well as to provide means to recover costs or damages. A party to a potential dispute involving a force majeure claim or defense will consider the following:
- Contractual terms. Whether a country follows civil law (which Latin American countries do) or common law, the terms of the contract reign supreme when it comes to force majeure. Particular attention should be paid to the conditions required to invoke a force majeure provision, if it incorporates events such as COVID-19 and / or associated government measures, what options and remedies might be available (e.g. extension time of performance, a fair adjustment of the contract price, etc.), what steps must be followed once a force majeure event has been declared, and what if performance is ultimately excused. The contract will often also define the respective obligations of the parties in the event of a force majeure event, including any time limits imposed for timely declaration of force majeure (or its termination) or for rejecting such a declaration.
- Applicable law (s). There is no universally accepted definition of force majeure. (We recap how five Latin American countries define “force majeure” below.) Accordingly, in addition to the terms of the contract, the parties look to applicable substantive law for advice on what constitutes a case. force majeure, how the law has been interpreted by local courts, and whether it addresses the ability of parties to report on such events. In addition, the parties consider: (i) measures taken by national and local governments in response to the crisis affecting contract performance, including measures that have been prescribed (as opposed to measures encouraged) and the duration of the contract. these measures, and (ii) whether other contractual disputes which may arise concerning sureties or other guarantees are likely to be disputed in a different jurisdiction.
- Mitigate the damage. The best way to track and mitigate any damages that may arise due to delay, including damages, is a primary consideration. While it is more common for force majeure contractual arrangements to only provide for extra time, rather than costs, parties are also encouraged to put in place a system of segregation and tracking of additional costs incurred as a result. force majeure event and the efforts made to mitigate it. (such as priority shipping cost). Such monitoring can also be particularly useful for applicants who wish to argue in the alternative that the event did not prevent performance, but rather that the performance has become unduly burdensome or more expensive than initially provided for in the contract. , thus triggering lack of foresight or clausule rebus sic stantibus under applicable law (see, for example, art. 868 of the Colombian Commercial Code; Art. 1440 of the Civil Code of Peru).
- Record keeping. The part with the superior documentation often has the advantage. Companies faced with a force majeure event or claim have every interest in paying particular attention to the generation and maintenance of a careful record of all correspondence and documentation relating to the force majeure event, its impacts and communications about it. This includes documentation that will help link or separate performance impacts to or from the pandemic, and a record of contact details of all current and former employees who have been actively involved in the project, and who may serve as witnesses in a potential arbitration or dispute. A party must necessarily be able to articulate a causal link between the non-performance and the force majeure event – raising or attacking force majeure statements requires a complete record to credibly establish positions respective.
The bottom line is that between the lingering uncertainties that the pandemic has brought to the world and the particular risks of increased disruption in the Latin American region linked to both the impacts of COVID-19 and government measures to combat it, the force majeure remains a very relevant consideration for the parties to the contracts out there. As noted above, how disputes relating to the invocation of force majeure will ultimately be resolved remains unclear. It remains reasonable to expect a wave of COVID-19-related and force majeure-based claims from Latin America in the coming years.
Summary of the definition of force majeure in certain Latin American jurisdictions
As summarized in previous Crowell & Moring alerts on the impact of COVID-19 regarding force majeure (Click on here, here and here), below is a recap of how these five Latin American countries define ‘force majeure’:
- Argentina: Article 1730 of the Argentine National and Civil Code of Commerce defines “force majeure” or “fortuitous event” (a / k / a “fortuitous event”Or“ Act of God ”) as an event which could not be foreseen or, having been foreseen, could not be avoided.
- Colombia: Article 64 of the Civil Code of Colombia defines “force majeure” or “fortuitous event” (a / k / a “fortuitous eventOr “Act of God”) as an unforeseen or impossible event, such as a shipwreck, earthquake, enemy capture, acts of authority carried out by a government official, etc. While Article 64 does not include epidemics or pandemics as examples of events consistent with force majeure situations, Article 847 groups epidemics with other types of natural disasters.
- Mexico: Although Mexico does not have a legal definition of force majeure, it does consider events consistent with force majeure scenarios such as those caused by nature or human conduct that (1) are beyond the control of the parties; (2) are inevitable; (3) are impossible to overcome; and (4) prevent at least one of the parties from performing its contractual obligations.
- Peru: Article 1315 of the Civil Code of Peru defines “force majeure” or “fortuitous event” (a / k / a “fortuitous event“Or” force majeure “) as a non-attributable cause, consisting of an extraordinary, unforeseeable and irresistible event which prevents the performance of an obligation or determines its partial, late or defective performance. On March 25, 2020, the Peruvian Public Procurement Surveillance Body issued Declaration No. 005-2020-OSCE, establishing that the country’s declaration of emergency due to the pandemic “constitutes a situation of force majeure which may affect contractual relationships concluded under public procurement legislation. , both from the contractor and the contracting authority.
- Venezuela: Under the Civil Code of Venezuela, obligations must be performed exactly as agreed by the parties, unless there is a external cause not attributable to the parties, including “force majeure” and “fortuitous events” (Articles 1271 and 1272). The Organic Tax Code of Venezuela also establishes that if force majeure or fortuitous events do not excuse compliance with fiscal obligations, they exempt in each case the payment of penalties or interest (Article 85.4).