Application of the rebus sic stantibus clause in times of Covid-19

Application of the rebus sic stantibus clause in times of Covid-19

Law, just like society, is alive and not simply limited to a set of rules that regulate social coexistence. Law evolves as technological, social cultural and economic changes take place in our surroundings and, consequently, it needs mechanisms that allow its adaptation to the new reality.
The clearest example of this possibility (and need) of adaptation of Law to the new circumstances is found in the so-called rebus sic stantibus clause, which is implicit in successive or long – term contracts and in virtue of which the contractual link is “rebus sic stantibus”: if things or circumstances remain the same.
The basis for the application of this clause lies in the basic rules of the our economic order and represents a mechanism to re-establish the parties’ performances that should allow to solve the problems that appear in contracts of long duration due to the appearance of unpredictable circumstances that occur and alter or destroy the contractual balance.
Thus, and without losing sight of the principle pacta sunt servanda, with this doctrinal construction there is an attempt to bring flexibility to the principle that obliges the parties´ to comply with their undertakings and, consequently, respond to an alteration of the circumstances allowing the contract to be maintained.
Therefore, the principle of balance that governs the performance of contracts allows, in case of extraordinary circumstances that alter the basis of the legal undertakings or genertaes excessive burden on one of the parties, to change, adjust or revise the contract in order to adapt it to this new situation.
Although it is not legally recognized in the Principality, the rebus sic stantibus clause has been analyzed by our courts for decades, especially to provide answers to cases of imbalance derived from monetary devaluation. However, this clause is not exclusively aplicable in such cases, but instead can be applied to changes occurred to circumstances in general.
Thus, and in this context, in 1985 the Superior Court of la Mitra (Tribunal Superior de la Mitra) indicated that “the rebus sic stantibus clause has been applied to situations in which, in an unpredictable manner, a strange alteration of the circumstances, independently from the parties, was capable of breaking the balance of performances, which caused the contract to become useless and seriously harmful to one of the partries”.
For all these reasons, and due to the global impact of the health crisis arising from Covid19, it is to be expected – and almost without any doubt – that, abandoning its initially exceptional or subsidiary character, the rebus sic stantibus clause could end up being configured as an essential mechanism in times of crisis.

Irina Monroy

Legal Dpt. Director

Augé Legal & Fiscal

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