The Bottom Line
- Reduced Risk on Major Projects: Sudden, prohibitive government regulations may now be a valid reason to terminate contracts under a force majeure clause, reducing your liability for unforeseen political risks.
- Urgent Contract Review Needed: This ruling highlights the critical importance of specific wording. Businesses must review and redraft force majeure clauses to explicitly include or exclude ‘changes in law or regulation’ to avoid future disputes.
- Increased Certainty for Regional Investment: The decision provides greater legal certainty for companies operating in the Dutch Caribbean, clarifying a key risk factor for long-term investments in regulated industries like tourism, energy, and finance.
The Details
In a significant ruling for any business with operations or contracts in the Dutch Caribbean, the Joint Court of Justice has clarified the scope of force majeure events. The case involved a commercial agreement that was rendered impossible to perform due to a sudden and fundamental change in government regulation. The party whose obligations were impacted invoked the contract’s force majeure clause to terminate the agreement without penalty. The other party disputed this, arguing that regulatory changes are a foreseeable business risk that should have been anticipated. The core question for the Court was whether a change in the law could be considered an unforeseeable, external event that excuses non-performance.
The Court’s reasoning hinged on the principle of foreseeability. It determined that while minor or evolutionary regulatory adjustments are indeed part of the normal course of business, a sudden, fundamental, and prohibitive legal change that was not on the public or political agenda when the contract was signed cannot be considered a standard foreseeable risk. The Court held that such a drastic intervention by the government constitutes an external event beyond the parties’ control, aligning with the core purpose of a force majeure clause. This decision effectively shields businesses from bearing the full financial brunt of abrupt, project-killing policy shifts.
This judgment serves as a powerful precedent for contract law across Aruba, Curaçao, Sint Maarten, and the BES islands. For CEOs and legal counsel, the message is twofold. First, it provides a stronger legal basis for invoking force majeure in the face of disruptive government action. Second, and more importantly, it underscores the necessity of proactive and precise contract drafting. Ambiguous clauses are a liability. Going forward, contracts governed by the laws of these jurisdictions should explicitly define whether “changes in law” or “government action” are included or excluded from the definition of a force majeure event to manage risk and prevent costly litigation.
Source
Source: The Joint Court of Justice of Aruba, Curaçao, Sint Maarten and of Bonaire, Sint Eustatius and Saba
