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Philippe Glaser

Philippe Glaser

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Leonardo Pinto

Leonardo Pinto

Associate

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Autoren
Philippe Glaser

Philippe Glaser

Partner

Read More
Leonardo Pinto

Leonardo Pinto

Associate

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1. April 2020

French law Force Majeure and Revision for unforeseen circumstances principles to the test of COVID-19

  • IN-DEPTH ANALYSIS

The COVID-19 epidemic currently crossing the world is an unprecedented event of an unequalled breadth, which is affecting economic actors due to both the spread of the disease and the governmental restrictions.

Facing this pandemic, practical questions relating to its impact on economic and commercial relations arise spontaneously.

How will a company be able to fulfill its orders, pay its debts, carry out the services stipulated in the contract as its workforce is affected by the movement restrictions, somehow operating by smart working or, in the worst case, affected by the disease? How will this impact existing contracts, whose execution could result difficult, impossible or excessively expensive to carry-on due to the Covid-19 epidemic?

French laws grant two instruments to allow economic actors to overcome these exceptional circumstances:  force majeure and revision of the terms of the contract by reasons of unforeseen circumstances.

The first legal instrument, which has existed since ancient times, is usually known, including by laymen, as a cause justifying with no liability associated the non-fulfillment of an obligation set forth in a contract. The idea is so common that the COVID-19 epidemic will be considered by administration as "a case of force majeure for companies, employees and employers”, said the French Minister of Economy Mr. Bruno Le Maire on February 28, 2020.

Yet, the popularity of the concept sets against a clear admission: French courts rarely qualify force majeure as an exonerating cause of contractual liability. Will the first decisions rendered on the subject reverse the trend?

The second legal instrument, new to French civil law and dating from the reform of the civil law of February 10, 2016, could allow contracts signed from October 1, 2016 to survive endemic or structural economic difficulties, which will be caused by the epidemic and by restrictive measures. Favoring at first a consensus, and then, alternatively, the recourse to the judge, the content of the contract will be adapted to the new economic situation, or else terminated. But then again, the novelty of the concept does not allow us to predict the interpretations that will be given by the courts and therefore, its efficiency.

Force majeure

Until the entry into force of the reform of 2016, the French Court of Cassation’s doctrine taught that any event that was unpredictable and irresistible could be considered as a force majeure event (Cass. Ass. Plén., April 14, 2006, n° 04-18902; n° 02-11168).

Since the ordinance of February 10, 2016, article 1218 of the French Civil Code reinstates the triptych of requirements of the force majeure, which is therefore an impediment to execution caused by an event which is 1) " beyond control of the debtor", 2 ) "reasonably unforeseeable at the time of conclusion of the contract" and 3) "whose effects cannot be avoided by appropriate measures".

In short, exteriority, unforeseeability and irresistibility.

Difficulties in qualifying the Covid-19 epidemic as an event of force majeure

Using these criteria, French case law considers that some major and massive events can result in a force majeure event.

This of course applies to natural disasters and meteorological phenomena. Thus, an extremely violent hurricane can constitute a case of force majeure (Cass. Civ. 1st, May 11, 1994, Bull. Civ. III, n ° 94), just as a volcanic eruption (Cass. Civ. 1st, March 8, 2012, n° 10-25.913). Conversely, a late frost, even classified as an "agricultural disaster", is not an unpredictable event (Cass. Soc., October 25, 1995, n° 95-40866). In the same way, the state of natural disaster declared by administration does not allow to deduce that the event is necessarily a force majeure event (Cass. Civ 3rd, March 24, 1993, n° 91-13.541).

However, the nature of the event has little importance and cannot qualify, by itself, a case of force majeure. Especially since the same event can constitute a case of force majeure in one hypothesis and not in others. The episode of exceptional drought and heat wave occurred in France in 2003, classified as a natural disaster constituted a case of force majeure in a case where the insurer's guarantee was called for the renovation of a building (Cass. Civ 2nd, March 29, 2018 n° 17-15017); however, the same event was unable to exonerate Monsanto from its responsibility in supplying heat-tolerant tomatoes seeds (CA Aix-en-Provence, April 22, 2015, n ° 12/19468).

The question is of course to know whether the disease generated by Covid-19 will be considered as a case of force majeure. There is no doubt about that debtor liability is waived in case of non-fulfillment of contractual obligations because of a disease personally affecting the debtor (Cass., Ass. Plén., April 14, 2006, n° 02-11.168; Cass. civ. 1st, Feb 10, 1998, n° 96-13.316). This is all the more true since the reform of the law of obligations, which require the event to be exterior and "beyond the control of the debtor". The disease is an exogenous pathological state and its development under no control. It can therefore be considered that when an obligation is impossible to be performed by a state of hospitalization of the debtor due to Covid-19, force majeure event may be invoked to waive liability.

However, can we consider that the epidemic as well as the health and economic consequences implied can result in a general case of force majeure? Nothing could be less certain.

A study of the case law rendered about epidemics and diseases which have spread in recent years, invite to consider that there is no actual established jurisprudence that would make Covid-19 a case of force majeure per se.

The courts have indeed considered that the epidemic of chikungunya which raged on the island of Saint-Barthélemy could not constitute a case of force majeure in the absence of an irresistible character, since this disease can be alleviated by analgesics and  generally be overcome (CA Basse-Terre, December 17, 2018, n° 17/00739). Likewise, the Ebola virus has not been qualified as a case of force majeure able to justify that a hotel did not payed the rents due to its lessor (CA Paris, March 29, 2016, n° 15/05607). We will note however that in that case, the concerned obligation was an obligation to pay monies, whose non-performance can in no case be justified by the occurrence of a case of force majeure (Cass. Com ., September 16, 2014, n° 13-20.306).

Therefore, the requirement of unpredictability is usually not retained when it comes to epidemics that are subject to studies and media coverage on a global scale. This was the case for the H1N1 flu epidemic, which was not classified as force majeure allowing a company to be relieved from its obligations, the performance of which had been made difficult by the health regulations implemented, since according to the judges, the epidemic in question had been “widely announced and planned” (CA Besançon, January 8, 2014, n° 12/02291). Likewise, the dengue virus being known by medical community, it was not a "new phenomenon" resulting in a force majeure event (CA Nancy, Nov. 22, 2010, n ° 09/0003).

Therefore, these case law principles make uncertain the likelihood that the Covid-19 epidemic could be considered as a force majeure event. Is it exterior ? Certainly. Unforeseeable ? The question remains open, given its progressive spread across the world and widely publicized. Finally, shall it be considered as irresistible ? A case-by-case appreciation will be necessary to ensure whether the company in question has implemented the means necessary to adapt and cope with it.

However, the unprecedented scale of the Covid-19 pandemic may influence the appreciation, so far harsh, of the French courts. At the present time, it will be noted that the Colmar Court of Appeal classified the current epidemic as case of force majeure, exonerating the presence of a person administratively detained, who could not be escorted because of the risk of contagion and could not in this case be questioned by videoconference (CA Colmar, 6th ch., March 12, 2020, n° 20/01098). Naturally, the dispute did not concern contractual matters, but the principles of force majeure were nevertheless retained.

However, it could also be considered to demonstrate that the case of force majeure consists not in the Covid-19 epidemic as such, but rather in the measures taken by the government to respond to it (movement restrictions, lockdown, shutdown of economic activities, closure of borders, etc.).

The health disaster and the disease of Covid-19 would then give way to the "act of state" resulting from decisions taken by the government. With more satisfactory results. We know indeed that the courts are more inclined to consider these events as cases of force majeure. For instance, it is the case of an unpredictable and irresistible cancellation of a building permit by an administrative authority who has exonerated the tenant company which was unable to carry out the construction (Cass. Civ. 1st, November 29, 1965: D 1966, p. 101. - Cass. Soc., May 19, 2010,
n° 09-40.901).

The consequences of the Covid-19 qualification as a case of force majeure

Since the 2016 reform of the law of obligations, the Civil Code expressly provides that temporary impediment due to force majeure suspends the execution of the obligation, in other words that it constitutes a cause of exoneration from liability. Therefore, the contract is still valid between the parties. However, during this period of suspension, is the contracting party not concerned by the case of force majeure exempted from performing its services?

There is no doubt about the answer.

When force majeure prevents one of the parties from performing its obligation, the other party also has the right not to perform its own.

This refusal to perform may result from the application of the exception of non-performance, the regime of which is provided by article 1219 of the Civil Code: "a party may refuse to perform his obligation, even though it is due, if the other does not perform his own and if this non-performance is sufficiently serious ”.

Others prefer to see in this right to refuse to perform the application of the risk theory and the principle "res perit debitori", which makes the debtor of the obligation bear the risks of non-performance in case a occurrence of a force majeure event.

Thus, a company unable to perform the agreed service due to force majeure would be exonerated from the consequences of its non-performance but could not claim for payment for the services it should have performed.

On the other side, when the impediment is final the Civil Code provides for the automatic termination of the contract, the parties then being released from their obligations.

However, by reference to articles 1351 and 1351-1 of the Civil code, the debtor thus released by a "definitive" case of force majeure (i.e. not temporary), will in fact be released only if no provision to the contrary has been stipulated between the parties and if no formal notice to perform had been received before the occurrence of the event of force majeure.

In the event of termination of the contract due to force majeure, the question of restitutions of goods and monies will also arise. In application of article 1229 paragraph 3 of the Civil Code, the restitutions will be integral or partial according to the "utility" that the parties would have find in the complete or progressive performance of the contract.

We will see how the courts will interpret the implementation of these conditions in the context of the Covid-19 epidemic.

Revision of the contract for unforeseen circumstances

The Covid-19 epidemic will certainly constitute an opportunity to apply the theory of unpredictability to the contracting parties who are getting to maintain their contractual relationship, but whose execution will be made difficult as much by the spread of the epidemic as such - as it will affect the workforce and resources of companies - as by the exceptional measures of containment and restriction of economic activities implemented by the government.

The difficulty will then be to convince the courts that the Covid-19 epidemic is an unforeseen circumstance that can cause current contracts to be revised.

French law has now abandoned the principle established by the old case law of the Court of Cassation, known as Canal de Craponne, which prevented, in the name of the binding force of the contract, the modification of its content even if the circumstances would have changed (Cass. civ. 6 March 1876). Over time, legal temperaments have thus been integrated into this or that area, like publishing contracts for the benefit of the author of the work (Intellectual Property Code, article L. 131-5).

Since the 2016 reform of civil law, article 1195 of the Civil code admits a revision of the contract when the following three conditions are met:

  • an “change in circumstances unforeseeable when the contract was concluded” must occur;
  • this change must make the “execution of the contract excessively onerous”;
  • the party affected by the occurrence of these circumstances "must not have accepted to assume the risk".

Will the Covid-19 epidemic constitute a change of circumstances justifying the revision of the contract?

Following the conditions expressed in the text, the unpredictability of the epidemic at the time of conclusion of the contract will certainly be retained for contracts concluded before the outbreak of the epidemic in Wuhan, in Chinese Hubei, where the first outbreak of contagion occurred.

But what about the contracts concluded between this date and the other evolutionary points of the epidemic? Was the circumstance of the occurrence of the epidemic in France unpredictable at the beginning of March 2020, whereas in Italy were already taken first steps of national lockdown and France already had a few cases, although sporadic ?

Furthermore, even if the circumstance was unforeseeable, it must still have been such as to render the execution of the contract excessively onerous. There lies the stumble point.

This cannot be understood as a simple difficulty of performance caused by the constraints linked to the epidemic, or a drop in profitability of the operations provided by the contract. Doctrine requires exceptional consequences, without going until to require the bankruptcy of a contracting partner. In the presence of a hardship clause, the Court of Cassation has considered that announcements of a price increase of raw materials ranging from 4% to 16%, as well as a decrease in the gross margin of 58%, did not characterize an increase in the cost of performing the services and a “fundamental alteration in the balance of the services” (Cass. com., February 17, 2015, n°12-29550, 13-18956, 13-20230). Analysis of the most recent jurisprudence rendered on the subject confirms the reluctance of the judicial judge to use the power of review granted to him by the texts.

The parties may have included in the contract clues to define what they mean by "excessively expensive performance", but it is very likely that such indications were not provided.

To this, it should be added that the scope of the revision for unforeseen circumstances has been limited by Law No. 2018-287 of April 20, 2018 ratifying the ordinance of February 10, 2016 reforming contract law, which excluded of the system obligations relating to operations on financial assets and financial contracts (Article L. 211-40-1 of the Monetary and Financial Code).

However, these difficulties of interpretation and implementation are put into perspective by the system set up by article 1195 and which is above all conventional.

Indeed, the parties will always be free, if they wish, to enter into discussions to adapt the contractual stipulations to the new economic circumstances related to the current health crisis. It is only in the absence of an agreement that the parties may, by mutual agreement, terminate the current contract or refer the matter to the judge to decide between the different proposals. Even in the absence of an agreement on the renegotiation, termination or referral to the judge, the party who considers itself wronged may always take legal action to obtain the revision of the contract or its termination.

The system put in place seems satisfactory as it avoids blockages and will allow the contract made excessively expensive due to the epidemic either to survive or to be terminated.

Nevertheless, it requires from the parties to continue to execute the terms of the contract until a new agreement is reached within a reasonable time, left to the judge's discretion.

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