COVID 19 and execution of contracts: recent case law on the rebus sic stantibus clause

The current situation generated by Covid 19 will have repercussions on the execution of the contracts, and for the resolution of this it will be necessary to resort to force majeure or the rule “rebus sic stantibus”.

In order to resolve the question posed, it is necessary to “start from the jurisprudence on the so-called rebus sic stantibus clause, which is contained in the recent decision 455/2019 of 18 July: “(…) according to the jurisprudential doctrine of rebus sic stantibus, the alteration of the circumstances that may cause the modification or, ultimately, the termination of a contract, must be of such magnitude that it significantly increases the risk of frustrating the purpose of the contract. And, of course, these circumstances must be totally unforeseeable for the contracting parties (Plenary Session Ruling 820/2012 of 17 January 2013).

A necessary condition for the application of the “rebus” rule is the unpredictability of the change in circumstances. If the parties have expressly or implicitly assumed the risk that a circumstance would arise or they should have assumed it because, by virtue of the circumstances and/or nature of the contract, such risk was reasonably foreseeable, it is not possible to appreciate the change that the non-assumption of the risk implies (recently Judgment 5/2019 of 9 January).

One cannot speak of an unforeseeable alteration when it is within the normal risks of the contract (judgments 333/2014 of 30 June, 64/2015 of 24 February and 477/2017 of 20 July, among others)”. The change of these characteristics that, under the premises established by the jurisprudence, could generate a case of application of the rebus sic stantibus rule is more likely to happen in a long term contract, usually of a successive nature. But not in a case, such as the present one, of a short term contract, in which it is difficult for something extraordinary to happen that affects the basis of the contract and is not covered by the risk inherent in that contract”.