WSG Article: Acts of God or Force Majeure before COVID-19

Acts of God or Force Majeure before COVID-19

March, 2020 - Alejandro Catala Guerrero, Daniel Del Río, Juan Jose López de Silanes, Juan Carlos Serra, Carlos Velázquez de León, Luis Luján, Jesús Colunga, Amilcar García, Jose Massas

PANDEMIC “SERIOUS PRIORITY DISEASE”	In accordance with the pandemic announced by the World Health Organization as a result of the outbreak of Coronavirus or COVID-19, and considered on March 19, 2020 by the Federal Government’s Health Council as a “serious illness requiring priority attention”, the following is an analysis of the legal effects that such pandemic could produce and its possible treatment as an acts of God or force majeure in Mexico.
CONTRACTUAL OBLIGATIONS	In Mexico, as a general rule, the parties must comply with the obligations acquired through the agreements they have executed, in accordance with the terms and conditions expressly established therein. That is, in Mexico the general principle of law “pacta sunt servanda” (what has been agreed must be complied with) applies, except for some exceptional circumstances that may exempt the parties from complying with such obligations.
	In this order of ideas, as a general principle of law, no one is obligated to the impossible. On the other hand, according to the Federal Civil Code, which supplements the Code of Commerce and other commercial laws, no one is obligated to comply its objections under Acts of God or force majeure except when he has given cause or contributed to it, when it has expressly accepted that responsibility or when the law imposes it on.
ACTS OF GOD / FORCE MAJEURE	Even though the Mexican civil code does not describe what an Act of God is and even gives it the same treatment as an event of force majeure, both figures constitute events beyond the control of the parties producing the same effects insofar as they prevent the fulfillment of obligations and, consequently, cannot be a source of liability (even in cases that can be foreseen, but cannot be avoided).
	The absence of a legal distinction between the two concepts gave rise to judicial criteria that differentiate them, giving the concept of an Act of God the meaning of events of nature and those of force majeure as behaviors (facts and/or omissions) of man and authority.
COVID-19	The spread of COVID-19 in Mexico, as of March 2020, by itself cannot necessarily be considered a acts of God that could justify the delay or failure to comply with obligations; however, health measures or other government determinations issued by the Mexican government or foreign governments may constitute force majeure events, by virtue of which our recommendation is to analyze the specific case individually.
FEDERAL GOVERNMENT / LOCAL AUTHORITIES	As of March 23, 2020, the federal government has not issued any administrative resolution, decree or other mandatory provision limiting or preventing the development of economic activities that could constitute an event of force majeure and has only issued general and non-binding recommendations through the Daily Technical Report (daily press conference). In a press conference on March 22nd, the Chief of Government of Mexico City, as well as the mayors of the districts of the capital of the country, ordered the temporary and indefinite closure of the establishments of concurrence such as museums, steam baths, gyms, massive events in churches and cult centers, cinemas, theaters, sports centers, zoos, as well as the Points of Innovation, Freedom, Art, Education and Knowledge (Pillars), Child Development Centers (Cendis), bars, night clubs and party halls. Similarly, the municipal government of San Pedro Garza García, in the state of Nuevo León, issued a Declaration of Emergency ordering the suspension of public events, the closure of crowded places, and the protection of all inhabitants in their homes (except in urgent or essential cases), while the Governor of the State of Jalisco urged all citizens of that entity, through press releases, to remain in their homes for a period of five days, starting Friday March 20 to Wednesday March 25, and clarified that the production and distribution of goods and services of primary need would not be limited; otherwise casinos, nightclubs, party halls and events, bars, pubs or similar, which are canceled, as well as ordered the reduction of the influx of people in the case of cinemas up to 50% and 25% in restaurants. It cannot be excluded that eventually other state governments, including the federal government, will adopt similar measures.
THE AGREEMENTS	In addition, the parties to an agreement may agree on the consequences arising from Acts of God and force majeure; they are even free to indicate what type of events may be considered as such, which allows for the possibility of reducing, to some extent, the adverse effects of these types of events. By example, the parties may agree to suspend any obligation(s), modify it, wait periods, among others, or even the agreement termination without liability for the parties in the event of a Acts of God or force majeure. In general terms, it is common for agreements executed in our country to include one or more clauses that allow for the suspension or termination of the agreement (acts of God and force majeure clauses), which, as mentioned above, are subject to interpretation by the parties. In this sense, (pandemic as a possible cause of acts of God or force majeure) it will be necessary to review the definition of such figures in each agreement in order to determine their applicability in each case, since in the absence of a legal definition, their scope and effects may be very variable based on the wording of each agreement and consequently the solutions may differ from case to case.