Force Majeure and loss of the basis for business in Hungary

When does the obligation to perform the contract cease to apply?

According to the provisions of the Hungarian Civil Code, a contract is dissolved when the performance of the contract becomes impossible. If one party can be held responsible for the impossibility of performance of the contract, the other party shall be released from its obligation to perform arising from the contract and may claim reimbursement of its damages caused by the breach of contract. The injuring party shall be released from liability if the latter proves that the breach of contract was caused by a circumstance beyond its control and unforeseeable at the time of concluding the contract and that it could not have been expected to avoid the circumstance or avert the damage. The term force majeure is not defined in the Hungarian Civil Code, but according to Hungarian case law it is considered an unavoidable event that neither of the parties could avert and thus constitutes a justification for termination of the contract.

When may a withdrawal or an adjustment of the contractual relationship be considered?

In Hungary, either party may apply for a judicial modification of the contract if, in a durable legal relationship between the parties, as a result of a circumstance occurring after concluding the contract, performance of the contract under unchanged conditions would violate its substantial legal interest and the possibility of the change of circumstances was not foreseeable at the time of concluding the contract, was not caused by it and does not fall within its ordinary business risk. The judicial amendment of a contract means the application of the "clausula rebus sic stantibus", i.e. as long as the circumstances remain unchanged, there is no basis for a unilateral amendment of the contract.

How can future contractual relationships be optimally structured?

As the Covid pandemic and the war in neighbouring Ukraine show, the use of force majeure contract clauses is becoming increasingly important and their use is becoming more common. The use of such clauses is also significant because they release from the obligation to perform the contract during the period of force majeure to the extent that the force majeure actually prevents performance (there are, for example, cases where the parties stipulate in the contract that the performance period is extended by the period of the force majeure). However, if the circumstance of force majeure permanently prevents the performance of the contract, it is considered in practice as a subsequent impossibility for which neither party can be held responsible.

Autor: Beatrix Fakó
Autor: Balázs Jakucs