The coronavirus (COVID-19) pandemic in France has led to travel bans and restrictions, including the quarantine of individuals. These measures have disrupted many businesses’ supply chains and operations, including factory and store closures. Amidst continued uncertainty, parties likely will seek reliance on force majeure contractual provisions to avoid liability or penalties for non-performance. This analysis includes recent COVID-19-related French case law relevant to the current crisis, which gives a clearer and more accurate picture of the current force majeure landscape.
Force majeure provisions operate as a risk-allocation mechanism to govern situations beyond the parties’ control, such as the outbreak of war or the occurrence of natural disasters.
Typically, in such cases, a force majeure clause allows for contracts to be suspended or terminated and for parties to avoid liability for non-performance.
Force majeure is defined in Article 1218 (paragraph 1) of the French Civil code. It provides the following:
Force majeure in contractual matters exists where an event beyond the control of the debtor, which could not have been reasonably foreseen at the time of the contract was entered into and whose effects cannot be avoided by appropriate measures, prevents the performance of its obligation by the debtor.
Any event which prevents a party to a contract from performing its obligations may therefore be characterized as force majeure when it has the following three characteristics:
The party seeking to invoke force majeure (typically the party not performing the contract) must prove that these conditions are met. Such party will typically need to show a causal link between the force majeure event and the failure to perform contractual obligations.
Whether the COVID-19 pandemic constitutes a force majeure event depends on the exact wording and scope of the force majeure provision in a contract.
Indeed, as force majeure provisions are not public policy provisions, the definition or the effects of force majeure may be subject to contractual arrangements. Therefore, the parties to a contract are free to withdraw the exempting effect of force majeure (e.g., through a guarantee clause) or include clauses in their contract providing a broader definition of force majeure.
These are some considerations to be taken into account when reviewing a force majeure provision:
However, theoretically, the application of force majeure will always be assessed by the French judge (should the parties go to court in this respect). The judge will determine whether the coronavirus pandemic constitutes a force majeure event on the basis of the facts of each case, and in particular with regard to the possibility of implementing appropriate measures to avoid adverse effects on the performance of the contract (e.g., use of alternative sources of supply, production at other sites).
Should such qualification be retained—which is every day becoming more probable considering the rapidly evolving governmental decisions and the already available case law (see above, the court of Colmar’s decision)—it would have the following consequences:
Indeed, Article 1351 of the French Civil Code provides that “the inability to perform the service shall release the debtor accordingly where it is due to a force majeure event and is definitive, unless the debtor has agreed to perform the service or has been given prior formal notice”.
In other words, the party referring to the force majeure event will be released from its obligations and can therefore not be held liable for its contractual breach.
If the parties cannot rely on force majeure, they might contemplate referring to Article 1195 of the French Civil Code, which provides for the possibility of renegotiating a contract in the event of “a change in circumstances unforeseeable at the time of entry into the contract which makes performance excessively onerous for a party who had not agreed to assume the risk.”
The term “unforeseeable” is used only if performance of the obligation has not been made impossible, but only more difficult by the debtor, either because it will in return obtain only a performance whose value will have been considerably reduced, or because performance, while not impossible, will require greater effort and a longer period of time than initially envisaged.
If COVID-19 is considered “unforeseeable” and if the application of the above-mentioned provision is not excluded (which is contractually possible), the parties can always try to refer to this provision as an alternative to force majeure to try to renegotiate the existing agreement.
With the rapid spread of COVID-19 and the expansion and escalation of government measures taken to combat and contain the outbreak, we are likely to see more cases of parties declaring force majeure.
Affected companies should review the force majeure provisions in their contracts carefully and consider the implications if such force majeure provisions are to be invoked. Companies may also consider drafting their force majeure clauses more broadly in the future to clearly include epidemics and public health emergencies, without the need to rely on a force majeure certification.
For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: