Bolivia is experiencing a reality without precedent. Due to the spread of COVID-19, on 17 March 2020, the President declared a national health emergency and quarantine, ordering citizens to remain at home, and closing Bolivia’s borders. These restrictions were increased by Supreme Decree 4200 of 25 March 2020.[1]
Currently, the circulation of public and private motorized vehicles is prohibited (including mail services and cargo shipments), except for the means of transport for the Bolivian Armed Forces, the Bolivian Police, public/private health services and others services dedicated to the provision of essential services and supplies. Private companies and/or establishments that do not comply will be sanctioned with definitive closure. Individual penalties for noncompliance include incarceration and monetary fines.
These measures have inevitably impacted the performance of many commercial contracts. Which party must assume the resulting losses or continued performance will depend on the specific facts of each case, but it is helpful to keep in mind the doctrine of force majeure, which excuses contractual performance due to unforeseeable, insurmountable forces (sometimes called “acts of God”) that make contractual performance impossible.
- Does the contract have a force majeure clause?
The first issue to consider is whether the contract has a force majeure clause. The purpose of a force majeure clause is to define which events will be considered force majeure, and how the parties will respond if such an event occurs, including how responsibility for the consequences of the event (i.e., losses) will be allocated between the parties. If the contract has such a clause, it will determine how force majeure will apply to the contract.
- What if the contract is vague or silent on this issue?
If the contract does not have a force majeure clause, or does not include a global pandemic as a force majeure event (which is likely), then a court would consider jurisprudence and doctrine.
Bolivian jurisprudence provides that an event must have the following characteristics to be considered force majeure or caso fortuito and excuse a party’s performance:
- External, meaning out of the obligated party’s control;
- Makes compliance with contractual terms impossible;
- Unforeseeable, meaning it could not have been reasonably predicted at the time the contract was signed;
- Inevitable;
- Current; and
- Its consequences were not aggravated or worsened by the acts or omissions of the nonperforming party.
Bolivian doctrine provides that examples of force majeure events include the following:
- Natural disasters (earthquakes, floods, fires, droughts, lightning, sleet, etc.)
- Acts or war or other third-party disturbances (theft, civil disturbance, labor strikes, shipwrecks, transit accidents, etc.)
- Orders by public authorities, usually the executive (expropriation, seizures, prohibition or limitation on trade, withdrawal from commerce of certain goods or currencies, etc.)
Bolivia has never experienced a national quarantine due to national health crisis like the one caused by COVID-19. However, in the past, the government has taken similar measures to limit citizens’ mobility and transit, such as, for example, in cases where martial law or a national security emergency (estado de sitio) was declared.
- What can I do to increase the probability that any nonperformance is considered excused under the doctrine of force majeure?
- Know your contract. Read the contract and note what it says (if anything) about force majeure or caso fortuito.
- Comply with all steps required under the contract—for example, notice. Many force majeure clauses provide that the party invoking force majeure to excuse its nonperformance must provide notice to the other party that: (1) an event preventing performance has occurred; (2) that the party considers such an event to constitute force majeure; (3) what actions the party is taking to mitigate potential damages; and (4) how long the event is estimated to last.
- Maintain proactive, fluid communication with the counterparty. Promptly inform the counterparty of any anticipated issues with performance and inquire whether the counterparty anticipates any issues with its performance.
- Establish one channel of communication with the counterparty. This will avoid sending mixed or contradictory messages regarding the topic, which could prove harmful in future litigation or arbitration. Remember that all communications, including those sent via Whatsapp, text or email, could be used as evidence in a future dispute.
- Maintain a record of communications. Keep contemporaneous notes of phone calls and meetings (including virtual meetings). Establish a designated space where this information will be stored and backed-up, and identify who is responsible for its upkeep.
- Given that COVID-19 is a global pandemic that is wreaking havoc in the worldwide economy, it is a foregone conclusion that my performance will be excused by force majeure, right?
Wrong! Eventually judicial and arbitral tribunals will have to decide the question of whether the circumstances caused by COVID-19 constitute force majeure. Although government prohibitions on transit and border closures will certainly be a strong factor in favor of a finding of force majeure, all circumstances must still be considered, including when the nonperformance occurred, when the governmental orders took effect, and what measures the nonperforming took to mitigate losses. In other words, nonperformance during the public health emergency caused by COVID-19 will not automatically be considered excused by force majeure. The situation therefore requires monitoring and analysis of the relevant factors at regular intervals as well as upon changes to the situation.
[1] Only one person per family may leave its residence to buy food and other necessities from 07:00 to 12:00, and this person must be between 18 and 65 years old. On Saturdays and Sundays, all persons are prohibited from leaving their residence, except for a security or medical emergency.