COVID-19 and the Impacts on the Danish Court System and Dispute Resolution Trends

Dato 17 mar. 2020
Download PDF version PDF

 

Background

The coronavirus (COVID-19) has now hit Denmark and the consequences are already showing.

 

11 March 2020, the World Health Organization (WHO) declared COVID-19 a global pandemic. As the coronavirus spreads and continues to cause business disruptions, consumer panic and market chaos, it should come as no surprise that COVID-19-related litigation has already been filed and the threat of future litigation looms over businesses.

 

Impact on the Court system

11 March 2020, the Danish government announced that all public servants who do not perform critical functions have been sent home with immediate effect for fourteen days starting on 13 March 2020. This will have a big impact on the operation of public institutions – and on the Danish courts.

 

COVID-19 has the potential to impact pretrial proceedings and otherwise delay cases.

 

The Danish courts have declared that they will only handle critical cases during the emergency period. This is stated in the latest official announcement on the Danish courts’ official website www.domstol.dk.

 

The courts have stated that it is not possible to provide an exhaustive list of what cases are deemed “critical”.

 

It will be up to the individual court to make specific assessments to determine whether a case meets the conditions to be characterized as critical.

 

Cases that had a hearing scheduled in the emergency period will most likely be postponed. The courts have already declared in their official statement that they do not have the capacity to complete all scheduled hearings, which means that the parties should expect cancellation of scheduled hearings.

 

Moalem Weitemeyer Bendtsen will follow the development in the treatment of pending cases and hearings closely. It is too early to assess the consequences for pending cases which have a scheduled hearing after the end of the emergency period (27 March 2020). In our opinion, it is likely that all pending cases will be affected by the current situation.

 

Impact on Dispute Resolution     

 

We predict that we will see a great deal of conflicts and cases resulting from the COVID-19 outbreak and its consequences.

 

COVID-19 has already disrupted global supply chains, travel and workplaces. The main question, which we will see being asked for many businesses and suppliers, is whether and when a party can terminate a contract due to COVID-19.  

 

Many businesses will consider looking into the possibility of using force majeure clauses in their contracts as a legal basis to terminate or minimize their contractual obligations which have been impacted by COVID-19.

 

Force majeure is a clause of contract that exempts one or both parties from a contractual obligation in an extraordinary situation which the parties have no control over, such as war, strike or natural disaster, making it impossible to complete the contract.

 

In order to determine whether COVID-19 can constitute a force majeure it is relevant to look into the force majeure clause in the contract. The application of force majeure depends on the wording of the clause, the nature of the parties’ contractual obligations, and the actual impact from COVID-19’s on the obligations.

 

Force majeure clauses are not used frequently and are typically interpreted narrowly by the court. Unless the clause includes a wording that captures an event like COVID-19, some courts may be reluctant to recognize COVID-19 as a force majeure event, especially if the impacts on the relying party are avoidable.

 

If the contract does have an exhaustive list of the concrete events that may be characterized as force majeure, or if the agreement does not contain a definite force majeure clause, it will depend on a concrete assessment of whether an outbreak of disease can be characterized as force majeure. As a general rule, it must be assessed whether it is impossible to fulfill the agreement.

 

Whether COVID-19 meets the requisite threshold of impact depends on the factual circumstances at issue, the wording of the force majeure clause and the obligation that a contractual party seeks excuse from.

 

In our opinion, the first assessment that the party must consider is whether COVID-19 has an actual and direct impact on the relying party’s ability to perform their contractual obligation.

 

It is unlikely that indirect impacts of COVID-19, such as pricing fluctuations or lack of demand, are less likely to be found to have prevented contractual performance.

 

We recommend that businesses get proactive and handle the issues strategically in order to comply with any notice obligations, take the necessary steps to limit losses and secure documentation which demonstrates to the other party that they have taken those steps.

 

Similarly, companies that are met by a claim of force majeure should demand evidence from a contracting party relying on a force majeure clause.

 

Finally, companies should be aware that reliance on a force majeure clause may ultimately result in litigation or trigger other dispute resolution mechanisms. This means that the parties should also consider how any reaction to COVID-19 will impact the overall relationship between the contracting parties and potential reputational risks. 

 

It will be relevant to consider whether the business may be better served by being prepared to negotiate a mutually agreeable outcome, particularly where the force majeure clause is not clearly in favor of your business.

 

We will likely also see a number of cases stemming from how employers handle labour and employment (e.g. layoffs, sick pay, handling of personal/medical information etc.).

 

Our Assessment

Our overall assessment is that we will see a great deal of disputes arising from force majeure interpretations. We recommend that companies carefully consider what means of dispute resolution are available in the circumstances and how to be best prepared if a dispute resolution mechanism is triggered. This includes being mindful of communication to counterparties regarding the force majeure clause and any honest performance or good faith obligations that may apply, retention of documents, and whether and when litigation privilege may apply.

 

 

If you have any questions or would like further information on the above, you are welcome to contact partner Thomas Weitemeyer (twe@mwblaw.dk) or Junior Associate Søren Degnbol Bech (sdb@mwblaw.dk).

 

The above is not legal advice and Moalem Weitemeyer Bendtsen does not warrant that the content of the above is correct. With the above, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader's use of the above as a basis for decisions or considerations.