Actualités

Outbreak of coronavirus and force majeure: the impact on contractual obligations

On the 28th of February 2020, the French Minister of the Economy Bruno Le Maire announced at a press conference that the coronavirus is “considered a case of force majeure for companies”. From then on, “for all State public contracts, if there is a delay in delivery on the part of SMEs and companies, penalties will not be applied”. But what about contracts concluded between private companies ?

The World Health Organization (WHO) declared the coronavirus outbreak as “a Public Health Emergency of International concern” on the 30th of January 2020. In this context, companies wonder what the impact of this coronavirus outbreak might be on the execution of ongoing contracts and if it may be regarded as being in the nature of force majeure, such as to permit the termination of contracts or their interim suspension.

  • What might be considered as a case of force majeure?

According to French law, in contractual matters, the force majeure happens when events are considered outside the control of the parties and could not reasonably have been foreseen at the time the contract was concluded. The effects of such events cannot be avoided by taking appropriate measures and result in impossibility for the debtor to perform the contractual obligations.

The unforseeability shall be assessed at the time of the conclusion of the contract. The event must also be irresistible, both in its occurrence (unavoidable) and in its effects (insurmountable). Since the 2016 reform, the Article 1218 of the French civil Code does not explicitly repeat the condition of external nature of the event of the force majeure but the principle remains partially present in the requirement for such event to be beyond the control of the obligor.

The coronavirus epidemic for contracts entered into before January 2020:
– The unforseeability criterion cannot be disputed;
– The irresistibility criterion needs to be assessed on a case-by-case basis, regarding the object of the contract, in particular if its performance occurs on a territory impacted by the epidemic.

Henceforth, if the force majeure is traditionally admitted in the events of natural disasters, outbreaks of hostilities or social unrest, epidemics such as the coronavirus which has been spreading since January 2020 can now be considered as a case of force majeure regarding French law.

In addition, the WHO Statement of the 30th of January 2020 constitutes an objective frame of reference which allows, without any automatism, the qualification of force majeure, depending on the terms of contract performance (Statement on the second meeting of the International Health Regulations (2005) Emergency Committee regarding the outbreak of novel coronavirus (2019-nCoV)).

However, it will certainly be more difficult to invoke the force majeure in case of more recent contracts, particularly those concluded after the 30th January 2020, as it is impossible to characterize the unpredictability of the event, although it cannot be definitely ruled out due to the evolutionary nature of the epidemic.

  • What are the effects on the contractual obligations?

The obligor’s liability:
The force majeure releases the parties (in particular in their obligation to perform and pay). The obligations are extinguished and the obligation creditor cannot obtain damages for the non-performance of the contract.

The case of partial impediment:
If the partial impossibility to carry out the contract’s performance is only related to obligations hindered by the case of force majeure, the obligor is released to the extent of such impossibility, meaning he is only released from the obligations impacted by the events of force majeure, not necessarily from all obligations arising from the contract.Let’s take the example of an international event organizer who has concluded contracts covering several territories. The coronavirus epidemic will undeniably have an impact on its business in China, Korea and Iran and other places affected by the epidemic.
However, force majeure would not be called upon for events organized in countries not affected by the epidemic. Therefore, the obligations would not be suspended for these countries, regardless of whether they form part of the broader contract.

The case of contract suspension:
In the event of temporary impediment, the execution of the contract is suspended unless the resulting suspension is seen as reason for contract termination. Therefore, the duration of the suspension depends on the duration of the impediment and within a reasonable time the execution of the contract may be resumed when the event ceases. However, it may happen that the creditor no longer has an interest in the execution of the contract because the delay caused by the suspension is sufficiently serious to justify the termination of the contract.
A new WHO declaration announcing the end of the Public Health Emergency of International Concern, or a decision from a national government body, may be a legitimate factor for lifting the interim suspension.
However, in practice, determining the lifting date of the suspension will depend on the relevant territory and the concrete evolution of the epidemic.

The case of contract termination:
– If the event proves to be of permanent nature, the contract can be terminated and both parties are entitled to withdraw from it as a result. In this case, the termination of the contract entails the reinstatement of the parties on the date of formation of the contract.
– Regarding contracts of successive performance: there shall be no reinstatement for the period prior to the last compensation for the achievement of a service.

  • How can you enforce a force majeure clause?

In the absence of force majeure clauses, the contracting parties may invoke such a case of force majeure, pursuant to Article 1218 of the French Civil Code.

It is possible to include in the contract a clause organizing the application of the case of force majeure, such as drafted below:
« The party unable to perform following the occurrence of a case of force majeure must notify the other party without delay (or within X days from the awareness he has or should have had of the event) of the occurrence of such event by registered letter with acknowledgement of receipt, detailing its nature and expected duration. The same party must inform the other party without delay of the cessation of the obstacle. »

In any event, even if the contract does not provide for anything regarding the force majeure, by virtue of the reinforced obligation of good faith arising from Article 1104 of the French Civil Code, it is incumbent on the party facing a case of force majeure to notify this event as soon as possible to the co-contracting party by characterizing precisely the practical impact on contract performance, and in any event prior to the suspension of its obligations.

  • In case of an epidemic, is the force majeure constituted if a Health Organization declares it is an extraordinary event?

When the WHO declares in its Statement from the 30th of January 2020 a “Public Health Emergency of International Concern”, it constitutes an “extraordinary event” (see the Statement aforementioned). The organization defines such event as one which is sudden, unusual or unexpected, which carries implications beyond national borders and requires immediate international action.

These criteria echo the force majeure criteria as defined by French law. Thus, this declaration provides a framework conducive to the recognition of a case of force majeure as established by Article 1218 of the Civil Code. Nevertheless, the enforcement of force majeure does not require the existence of a prior decision from any national or international organization.

In any case, whether or not a force majeure clause is triggered by an epidemic depends on the drafting and the terms of such clause; however, not expressly mentioning that epidemics can be considered as a force majeure event does not mean it will not be considered as one. It appears to be ineffective to object to the force majeure nature of the Covid-2019 epidemic, even if the force majeure clause is drafted in a general manner without specific mention of such epidemics, considering the exceptional seriousness of the situation.

Moreover, the lists contained in the force majeure clauses are usually only indicative and cannot be deemed comprehensive.

* *
*

In conclusion, if your company is confronted with force majeure events and wishes to suspend its obligations or terminate the contract because it considers its economics has been disrupted, it will have to notify its partners with commercial loyalty and in good faith in order to limit the prejudicial consequences against them.
This notification needs to precisely mention how the contract is affected by the force majeure event and what practical impact it has on its performance.

Vincent FAUCHOUX