Depending on the effect the COVID-19 crisis has on the performance under the contract, it can cause difficulty in fulfilling obligations, but not the entire inability to perform obligations. In such a case, one may consider the application of the change of circumstance clause (rebus sic stantibus).
The concept of changed circumstances means that the parties may:
- Modify their agreement and their obligations
- Mutually decide to terminate the agreement,
provided the following criteria are met:
1. The circumstances have substantially changed in comparison to the effective date of the agreement
2. The change in question puts one of the parties in difficulty or the purpose of the contract cannot be fulfilled
3. It is obvious that the contract no longer corresponds to the expectations of the contracting parties
4. It would be, according to the general opinion, unfair to maintain it in force in its present form
5. The party in difficulty was not obliged or was not able to take into account the change of circumstances on the effective date or the party could not have avoided or overcome the difficulties.
A notification of a change of circumstances and a request to terminate the contract must both be submitted before the contractual obligation is due.
It is very interesting to note that criterion 2 corresponds with a concept of “Doctrine of Frustration” under the English law, although this doctrine is highly uncommon in the legal systems that belong to the civil law legal tradition, such as the Serbian legal system. In practice, this criterion has proved to be one of the most difficult ones to meet.
If the parties may not agree on the modification or termination of the contract, the party which is faced with the difficulty to perform and finds itself in an unfair position may seek the termination of the contract through the court.
Like in the case of force majeure, the burden of proof lies with the party claiming the change of circumstances.
However, even if all the criteria are met there may be a clear obstacle in the contract. Namely, under the Serbian law, the parties have the possibility of a prior waiver of the right to terminate the contract due to changed circumstances, unless it is contrary to the principle of conscientiousness and honesty. So, before you intend to claim the change of circumstance, read through the contract carefully again.