Due to the spread of COVID-19 and with the aim of safeguarding the health of attendees and the population in general, a number of congresses and other events organised or sponsored by pharmaceutical companies have been cancelled.
However, there are reports that, despite the circumstances surrounding the cancellations, hotels and travel agencies have been reluctant to reimburse reservation deposits or are triggering the no-show penalties established in the reservation contracts. Some are even treating the cancellations as voluntary breach of contract and applying the provisions of article 1,124 of the Spanish Civil Code, according to which the harmed party is entitled to termination of the obligation as well as to damages and interest.
However, strictly from the perspective of Spanish law, it is questionable that these practices would be lawful. As we will see below, it is clear that the cancelations can be understood to have been caused by force majeure. As such, article 1,105 of the Spanish Civil Code establishes that “Outside the cases expressly provided for by law and those expressly covered by an obligation, nobody shall be liable for events that could not have been foreseen, or that, having been foreseen, were inevitable”.
Irrespective of the debate in case law as to the distinction between fortuitous event and force majeure, which is irrelevant for our purposes here, legal doctrine and case law have emphasised that for article 1,105 of the Civil Code to apply, the decisive event must have been unforeseeable or, if foreseeable, it must have been inevitable (Supreme Court judgments dated 31 July 1996 and 28 December 1997). It has been stressed that the range of events that may be caught by that description is not closed, with the Spanish Supreme Court declaring in judgment dated 25 March 2003 that it should also include events “covered by article 1,575 of the Civil Code: fire, war, plague, sudden flooding, infestation, earthquake or other uncommon events that could not have been foreseen".
It seems evident that the reference to "plague" in the literal wording of the Civil Code (which, in the case of article 1,575, is the original wording from 1889, a fact which must be taken into account in its interpretation pursuant to article 3 of the Civil Code) offers sufficient grounds to include an event such as the propagation of COVID-19, an event that is clearly uncommon, unforeseeable and inevitable, as required by case law. This is especially true if we take into account that, as pointed out by the judgment of 25 March 2003, “the event need not be catastrophic or unusual; it suffices, as mentioned above, that the event have been caused by abnormal circumstances beyond the operator's control – outside the commercial risks normally borne by enterprises – and the consequences of which are inevitable or avoidable only at excessive cost, despite all the diligence used.” Furthermore, there are precedents where force majeure has been understood to exist in connection with contractual issues resulting from epidemic phenomena, and this has been grounds for release from liability in those cases.
From an initial look at the issue, and notwithstanding the need to analyse the merits of each case (to assess the specific circumstances, such as the exact moment at which the cancellation took place, the status of the epidemic when it took place, the wording of the contract, etc), it can be concluded that there are valid legal arguments to call into question the application of penalties and the refusal to reimburse reservation deposits when cancellations have been made on the basis of the spread of COVID-19.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2021