Coronavirus – force majeure – contractual obligations
On February 28th, 2020, the French Minister of Economy, Mr. Bruno Le Maire, tried to reassure business leaders by stating that “the coronavirus will be considered as a case of force majeure for companies”.
Nonetheless, can contractual parties validly fail to perform their contractual obligations on the grounds of COVID-19?
Force majeure under French law
Force majeure is defined under Article 1218 of the French Civil Code. Under the terms of this article, the party who invokes force majeure shall not be liable for the failure of the performance of his obligations if he can justify the occurrence of an event meeting the following three cumulative conditions:
(i) An event beyond its control,
(ii) An event unforeseeable at the time of the conclusion of the contract,
(iii) An event whose effects are unavoidable
It should be noted that the parties may derogate from the provisions of the Civil Code, which are not of public order, and therefore provide in the contract their own definition of force majeure, or even exclude any case of force majeure.
The effects of force majeure are gradual. The Civil Code distinguishes between a temporary and a permanent impediment, resulting in either suspension or termination of the contract, depending on the case. All obligations that cannot currently be fulfilled must be postponed and must be fulfilled as soon as the situation permits. However, if the delay renders the performance unnecessary or invalid, the obligation shall be extinguished and the parties shall be returned, as far as possible, to their original situation.
Does covid-19 qualify as force majeure?
The existing French case law on epidemics tends to the contrary. The H1N1 flu epidemics in 2009, the dengue fever virus and the chikungunya virus have not been judged as health crises constituting events of force majeure. An epidemic is therefore not necessarily a case of force majeure. It must meet the legal and jurisprudential criteria.
On the other hand, if the epidemic is not in itself a case of force majeure, the measures taken by the government to contain it may qualify the current crisis as such.
An event beyond the control of the contractual party
The event constituting force majeure must be external to the party invoking it, independent of its will. Case law refers to a ‘foreign cause’, not attributable to the debtor.
The external nature of the measures decided by the government to combat Covid-19 (establishment closures, prohibition of gatherings, quarantine, etc.) is certain.
Not only does the debtor have no control over these events, which are imposed on him under penalty of legal sanctions, but their cause is external to him.
It will be necessary to assess whether, in practice, on the date under which the contractual obligations were to be performed, the police measures in place made their performance impossible.
An unforeseeable event at the time of the conclusion of the contract
Unpredictability is assessed through the qualities of the debtor and taking into account the time and place where the event occurs.
The majority of the legal doctrine admits that the current health crisis could not reasonably have been foreseen by a prudent and diligent contractor. The unpredictability of Covid-19 is fairly widely accepted, at least for the period before March 2020.
Indeed, unpredictability is assessed on the day the parties enter into the contract. The question therefore arises as to when the coronavirus epidemic became “predictable”.
The first three cases of Covid-19 in France were identified on 24 January 2020. At that time, experts stated that the epidemic would not spread massively in France. A few weeks later, the government took its first police measures and the French Minister of the Economy referred to “a case of force majeure”.
The courts alone will be able to sovereignly assess, on a case-by-case basis, the unforeseeable nature of the epidemic for the contracting parties, depending on the date on which the contract was entered in and the governmental measures applicable at the time.
An event whose effects are unavoidable
The assessment of force majeure is made not only with regard to the nature of the event in question, but also depends to a very large extent on the scope of the obligation which it is claimed cannot be performed. For this reason, the criterion of irresistibility shall be assessed on a case-by-case basis taking into account to the particular subject matter of the contract.
Only events whose effects cannot be avoided by appropriate measures will constitute a case of force majeure. This will only be the case if the contract is not capable of being performed by a third party who would take the place of the prevented debtor.
Moreover, force majeure cannot be used to escape the performance of certain contractual obligations, in particular those relating to interchangeable items. As such, the debtor of a contractual obligation to pay a sum of money cannot reasonably be relieved of that obligation by invoking force majeure.
There are therefore many situations in which the current health crisis cannot be considered as a case of force majeure. There are, however, other legal mechanisms which the parties may resort to, if necessary, and in particular the renegotiation of contracts in application of the principle of hardship (Article 1195 of the French Civil Code). Indeed, if the conditions of certain contracts become unbalanced as a result of the epidemic or the measures taken by the authorities to maintain it, such contracts may be renegotiated to the extent that there is a change of circumstances which was unforeseeable at the time they entered into the contract, which makes its performance excessively onerous for one party.
With regards to the Covid-19, it is advisable to be cautious and to analyze each particular contractual situation before invoking force majeure. Trained in international contractual techniques, Amstel & Seine’s lawyers will be able to answer all your questions.
Paris, April 2020
Marinka Schillings (Contract Law, Litigation), Valérie Judels (Contract Law, Litigation), Grietje Van de Wiel (Business Law) and Maureen Henry (Contract Law) will be your dedicated lawyers for all your questions on force majeure.