Alerts

Memorandum

force majeure and unforseeability in contract law

 

 

Anne Cousin – April 3, 2020

 

The performance of a very large number of long-term and short-term contracts has been and will be disrupted by the crisis caused by the spread of the corona virus.

How does French private contracts law respond to this situation?

 

 

1. The force majeure

 

1.1 The concept of force majeure

 

Since the 10th February 2016 reform, the Civil Code directly defines the events that can be treated as force majeure. According to article 1218: “Force majeure in contractual matters exists where an event beyond the control of the debtor, which could not reasonably be foreseen at the time of the conclusion of the contract and the effects of which cannot be avoided by appropriate measures, prevents performance of the debtor’s obligation”.

Two of the conditions laid down by courts before the 2016 reform still apply: it is essential that the event in question be unforeseeable and irresistible. However, it is no longer necessary for the event to be external (“exterieur”) to the party claiming it. In contractual matters, it is the impossibility of performance (obviously subsequent to the conclusion of the contract) which is considered to be the essential element of force majeure. Performance which is simply more difficult or more onerous (for example, because of the use of additional staff or the need to obtain supplies at a higher price in order to deliver to its own customers) is not sufficient to enable force majeure to be invoked.

This situation is also assessed by the courts in abstracto, and not concretely in the context encountered by the party to the contract who has difficulties in performing. As a result, the court will focus its attention to the measures that should have been taken and not to those that a party could take in view of his/her specific situation.

Consequently, the employee’s illness may or may not be considered a force majeure event, depending on the employee’s role and position in the company. An epidemic or pandemic may or may not be considered force majeure, depending on whether such epidemic or the measures taken to contain it (such as containment) have the characteristics of force majeure in each specific case.  It is therefore not possible at this stage to consider the corona virus pandemic as a general case of force majeure. Moreover, financial obligations (paying for the service) are very rarely, if ever, affected by force majeure.

Also, the parties may include a force majeure language/clause in their contracts since force majeure is not governed by mandatory/public order provisions. However, a distinction must be made between two types of clauses. Those which list a series of events (strike, impossibility of supply…) but which leave it to French case law to decide what a force majeure event is and those which express the will of the parties to have them produce in all cases the effects of force majeure. Only the latter are truly effective and can therefore allow this notion to be retained in cases where the courts would not do so.

 

1.2 The effects of force majeure

 

Article 1218 of the Civil Code now clearly provides for two cases of impediment to performance of a contract.

If the l impediment is temporary, performance of the obligation will be suspended; if, on the contrary, the impediment is permanent, the contract is automatically terminated and the parties are released from their obligations.

In the first case, the contract will continue to be performed once the event of force majeure has ceased, without the party affected by the force majeure being held responsible for the delay in performance. In the second case, the contract will be deemed rescinded, without damages for either party.

The termination will have retroactive effect in the case of an instantaneous contract whilst regarding contracts with continuing performance the effect of termination will as a matter of principle be for the future only.

In principle, the services delivered at the time the force majeure event happens must therefore be paid. Difficulties are likely to arise in the case of services provided over time (e.g. specific software development) and which are stopped by the force majeure event. Is payment due for the work carried out as the developments are only of interest once they have been completed? And if so, how to evaluate the price? This is typically under those kind of circumstances that force majeure clauses/languages are useful if properly worded and may avoid complex discussions in the event of a dispute.

In any event, force majeure precludes the notion of breach t: if force majeure applies no compensation/damages will be due to the party who suffers it, regardless of the seriousness of the consequences for that party.

 

 
2. The “unforeseeability” theory

 

 

The current corona virus pandemic and the restrictive administrative measures currently in force might therefore not be eligible to force majeure treatment.

However, French civil law has now adopted another concept which makes it possible to be released from a contract under severe and adverse circumstances.

Article 1195 of the Civil Code provides that “If a change in circumstances unforeseeable at the time of the conclusion of the contract makes performance excessively onerous for a party who had not agreed to assume the risk, that party may request a renegotiation of the contract from his co-contractor. That party shall continue to perform its obligations during the renegotiation.

In the event of refusal or failure to renegotiate, the parties may agree to terminate the contract on the date and under the conditions they determine, or jointly request the court to adapt the agreement it. If no agreement is reached within a reasonable time, the court may, at the request of one of the parties, revise or terminate the contract on the date and under the conditions it shall determine. ».

As opposed to force majeure, the notion will apply provided that the performance of the contract has become excessively onerous, and the party who suffers this extra cost has not accepted it in advance (e.g. by a price indexation clause).

“Unforeseeability”, if applicable s, has the effect of preventing a party from being kept in the bonds of a contract which it no longer wants: either it is revised by the two contracting parties, or by the judge, or it is terminated.

The judge’s power in this respect is very important since the court is authorized to modify and adapt all the existing clauses so that the performance of the contract loses the excessively onerous character which triggers the application of the text.

It is possible that the current pandemic falls within the provisions of Article 1195 of the Civil Code and will therefore lead to the renegotiation of ongoing contracts and in case that such renegotiation should fail to court actions once the courts have resumed their activity.

However, a large number of contracts concluded after the reform of 2016 excludes the application of article 1195 of the Civil Code, either explicitly by a specific clause, or indirectly through various provisions that provide for an adjustment of the contract (automatic or otherwise) in the circumstances they describe.