Today, the risk of not being able to perform one’s contractual obligations or to suffer the other party’s failure to perform its contractual obligations is one of the main concerns of many business partners. This is why we will by discussing some practical insights under French contractual law applicable to business partners (to the exclusion of administrative law).

On February 28, 2020, the French Ministry for Economic Affairs stated that the COVID-19 epidemic will be considered as a force majeure event and that the penalties for late deliveries will not be applied in public contracts. However, it is nonetheless true that failing any mandatory legislative provision applicable to the private sector, agreements remain the law of the parties under the judge’s control.

Indeed, force majeure is the first mechanism contemplated to decide the fate of an agreement (pursuing its enforcement, suspending it or notifying its termination) and determine the liabilities. The notions of « fait du prince », hardship and non-performance defence are also useful depending on the circumstances.

To manage this exceptional situation and to provide the appropriate response, each business partner must first consider the right questions:

• Does the contract include a force majeure clause or, on the contrary, does it exclude force majeure?

After the discussions that took place further to the reform in Contract law, the solution is now well established: It is possible to exclude expressly from the contract the force majeure defence that is not a public policy provision. In other words, the debtor of the obligation (having waived this right) cannot invoke force majeure to avoid its obligations (unless it invokes a substantial imbalance). Therefore, the first check must be as follows: is force majeure expressly excluded?

If the contract contains a force majeure provision, it is imperative to review its wording, whether it is restrictively worded, and which events are listed as force majeure.

The contractual partners are not bound by the definition provided under Article 1218 of the French Civil Code and case law. Between professionals, a provision providing for an extension of the force majeure events is valid (French Supreme Court, 8 July 1981, No. 79-15626). The parties may state in advance the events that will constitute force majeure or exclude them. In this case, the occurrence of the event listed in the clause will constitute force majeure without having seek whether the event meets the legal definition of Article 1218 of the French Civil Code (see below).

• What happens if the parties have restrictively listed force majeure events without referring to a pandemic or a “fait du prince” (mandatory act of government)? 

The parties can indeed decide to limit the force majeure events (restrictive clause) or have one party bear the force majeure event (warranty clause).

The new Article 1351 of the French Civil Code follows this approach. It provides that in the most serious case where it is impossible to perform an obligation (and not a mere suspension), the debtor of the obligation can bear the consequences of the force majeure event. According to this new Article: “The impossibility to perform the service releases the debtor in due proportion when it is caused by force majeure and it is definitive, unless it agreed to bear the burden thereof or it was previously formally notified.”

• If the contract does not specifically provide that a pandemic is a force majeure event, can it provide it subsequently?

It is always possible to amend the terms of a contract by mutual agreement of the parties. The parties can conclude an amendment to the contract providing for example that the current pandemic is considered as a force majeure event. The parties can also contractually provide the consequences of the pandemic.

• If the contract provides a specific mechanism of notification of the force majeure event, is it compulsory to follow the procedure?

It is mandatory to follow the procedure defined in the contract. Failing to do so can be considered as negligence that may trigger damages for which the defaulting party will be liable, at least for those damages that could have been prevented by a notification compliant with the contract. To avoid this risk, notification must be sent as soon as possible after the occurrence of the force majeure event. We also draw your attention to contracts that provide for forfeiture of this regime if the force majeure event is not notified within the agreed timeframe: let us avoid a discussion on the validity and scope of such provision.

• In the absence of any contractual clause, is it still possible to invoke force majeure?

Unless provided otherwise, force majeure is an integral part of all contracts in accordance with Article 1218 of the French Civil Code.

Three conditions are required: (i) the event must be unforeseen (the event “could not be reasonably foreseen at the time of the signing of the contract”), (ii) external to the parties (the performance of the obligation is prevented by “an event out of the debtor’s control” ; more precisely, one must ensure that the event is out of the debtor’s control even if it is not strictly external, such as an illness) and (iii) unavoidable (“the effects cannot be avoided by appropriate measures”).

The condition of exteriority does not raise any difficulty in relation to the COVID-19 epidemic. On the contrary, the conditions of unforeseeability and unavoidability can be discussed.

Also, which questions need to be asked to know whether it is possible to benefit from the exonerating effect of the force majeure of Article 1218 of the French Civil Code:

When did I sign the contract or the order?

If the contract or order was signed well before the first episodes of COVID-19 in China, or even in Europe, then the pandemic will be unforeseen.

On the contrary, if the contract or order was signed after the speech of the President of the French Republic on 16 March 2020 when he ordered the lock down, the unforeseen nature of the pandemic will be missing.

However, it will be more difficult to say whether the pandemic was foreseeable in France at a time where the regional or national press mentioned the possibility of lock down measures, notably between 9 March 2020, date when Italy was in lock down (or even from 28 February 2020 – see above) and 16 March 2020 date when France went into lock down. If a judge must rule, he will make a case-by-case assessment, depending on the nature of the obligation and the relevant business sector.

Thus, the Besançon Court of Appeal (2nd commercial chamber, 8 January 2014 – No. 12/02291) refused the exonerating effect of force majeure of the H1N1 flu epidemic on the grounds that the epidemic “had been widely announced and foreseen, before the implementation of the sanitary regulation behind which [X] tries to hide”. The unforeseeable nature of the change in regulation was lacking since it could be expect by all. The Basse-Terre Court of Appeal (1st civil chamber, 17 December 2018 – No. 17/00739) also dismissed the exonerating effect of force majeure in relation to the chikungunya epidemic that “despite its characteristics (articular pain, fever, headaches, tiredness...) and prevalence in the West Indies arc and particularly on Saint-Barthelemy Island in the course of 2013-2014, cannot be considered as unforeseeable and most of all unavoidable considering that in any event, the illness eased by antalgics is generally manageable (as the respondents did not invoke any particular medical frailty) and the Hotel could offer its services during this period”.

By taking certain measures, can I escape or limit the effects of force majeure?

It is crucial to ask oneself if the performance of the obligation is only delayed for the duration of the event or if it is definitively prevented. If the obligation is only delayed, the debtor of the obligation will have to perform it as soon as possible except in exceptional circumstances when the delay could justify the termination of the contract.

Therefore, to be totally released from the performance of its obligation, the performance impossibility must be absolute. The definitive prevention will cause the termination of the contract. Before invoking it, one must ensure that this is the desired objective. Article 1218 of the French Civil Code recalls that the effects of the force majeure event could not have been prevented through appropriate measures. If, by taking certain measures, it is possible to perform the contract, the force majeure event will not be accepted since the unavoidability will be lacking.

The mandatory prohibitions issued by national or regional bodies that are legally binding subject to penalties, are practically systematically considered as force majeure events. It is a “fait du prince” since it is not possible to circumvent these prohibitions.

If the prevented activity falls under one of these prohibitions or is directly and irrevocably impacted by these prohibitions, it should be possible to benefit from the force majeure defence as a result of a “fait du prince”. Since the declaration of 16 March 2020 of the President of the French Republic imposing the lock down, and the decrees and circulars prohibiting circulation or imposing the closure of non-essential businesses, the “fait du prince” could be invoked as exoneration from performing previously signed contracts. It is more these measures, whose scale is unprecedented, rather than the COVID-19, that may render the performance of certain contracts impossible. If, on the contrary, the services are intellectual and can be achieved remotely or do not require any travelling, the “fait du prince” may not be accepted.

• Is it possible to be released from a payment obligation as a result of the lock down and prohibition to circulate?

As a principle, the answer is no since force majeure cannot exonerate from payment obligations.

The French Supreme Court recalled that “the debtor of a contractual obligation to pay a sum of money that is not performed cannot be released from its obligation by invoking a force majeure event» (Cass. Com., 16 September 2014, No. 13-20306).

The Paris Court of Appeal has already ruled that the Ebola epidemic is not exoneratory: “even if it were considered as force majeure, [it] is not enough to establish ipso facto the decrease or lack of funds invoked by the appellant” (section 6, chamber 12, 17 March 2016 – No. 15/04263), or that the non-performance of “the obligations of SARL [X], the main one being the payment of the rent [...], because the spread of the Ebola virus in West Africa and the presence of jihadism in Senegal do not render the performance by the lessee of its obligations impossible” (section 1, chamber 3, 29 March 2016 – No. 15/12113).

On the other hand, these financial situations may be the subject of contractual negotiations between the parties and an amiable resolution prior to any litigation. They can also be subject to insolvency proceedings (notably safeguard proceedings and ad-hoc proceedings that do not require a state of suspension of payments to be implemented).

Incidentally, the cash-flows difficulties that may result from the current pandemic may be considered as justifications for such proceedings to be opened by the Commercial Court. This is the meaning of the decision of the Paris Commercial Court that postponed all its hearings, except insolvency proceedings hearings (although at a reduced level).

• When should one notify a force majeure event to its business partner in the absence of any contractual provisions in this regard?

The French Civil Code does not provide for any particular procedure. One must therefore act in good faith. This entails notifying the force majeure event as soon as it is reasonably conceivable that there will be a situation of contractual non-performance due to current circumstances.

• If the three conditions listed above are not met, can one still assert a force majeure defence?

The answer is no. Force majeure requires that the three conditions are met: the event must be unforeseen, external to the parties and unavoidable. Case law is strict.

On the other hand, if the contractual clause providing for force majeure only provides for two out of the three conditions, or provides for other more flexible conditions to assess the force majeure events, or also lists certain events as constituting force majeure, the contractual clause shall prevail even if the three cumulative conditions of the French Civil Code are not met. It will not be necessary to meet these three conditions.

• What are the consequences of a force majeure event?

Force majeure is an exemption from liability. This means that the defaulting party cannot be held liable for its default and the consequences thereof.

When there is a contractual clause, this clause usually provides for the suspension of the performance of the obligations, or their postponement to a future date after the cessation of the force majeure. Moreover, it is often provided that if a certain period of time elapses, the parties may choose to terminate the contract if the force majeure event continues.
The same mechanism is provided for in Article 1218 of the French Civil Code that provides that, in case of a temporary force majeure event, the suspension of the obligations is temporary, but if it is definitive, the contract is terminated.

• If one cannot invoke force majeure, is it possible to renegotiate the contract claiming hardship?

It is always possible to renegotiate the terms of a contract if the parties agree. The parties must then sign an amendment to the contract to modify its terms.

For contracts signed since 1 October 2016 (that benefit from the new provisions resulting from the Contract law reform), it is possible to claim the application of hardship under Article 1195 of the French Civil Code if the performance of the obligation is still possible but it has become extremely costly. In practice, invoking Article 1195 of the French Civil Code is binding since during the negotiations, the contract must still be enforced (paragraph 1 in fine). Given the current circumstances, the opportunity to claim hardship must be assessed on a case by case basis but it may remain an adequate solution if, after the end of lock down, the performance of the contract that one may have thought simply suspended, becomes too costly due to, for example, the new economic situation subsequent to the pandemic. One must also remember that if the renegotiation fails, the judge, referred to by the parties, may adapt or revise the contract or terminate it.

• Is it possible to suspend the performance of an obligation if it is obvious that the other party will not be able to perform its own obligation?

The answer is yes. The non-performance defence is a classic. It is now clearly set out in Article 1220 of the French Civil Code. One must however check that the non-performance by the other party is “obvious” and causes “sufficiently serious consequences” for the party claiming the benefit of the non-performance defence. Of course, good faith is a prerequisite.

Given the current circumstances, It is obvious that contractual good faith and loyalty in the performance will justify that all business partners come together to try to negotiate the consequences of the pandemic since the force majeure defence may be a hazardous decision from a purely judicial point of view, even if it is possible to think that the truly exceptional nature of the current situation will lead judges to be more comprehensive. We invite you to review carefully your agreements and terms and conditions to identify the contractual provisions providing for force majeure and hardship. It is also important to remain attentive on the regulations that may be adopted in these exceptional circumstances.