Beyond COVID-19: Crisis response or road to recovery?
Crisis response or road to recovery?
With the spread of Corona virus (COVID-19) throughout the world, companies are beginning to invoke force majeure to limit their contractual liability in the face of performance difficulties they encounter with their co-contractors. The spread of the virus could thus multiply the use of the concept of force majeure, with a "domino" effect.
In line with the announcement of the French Minister of the Economy dated 28 February 2020, which recognises the Corona virus as a case of force majeure for companies within the framework of contracts signed with the State, would it be possible that this would apply in contractual relations between private individuals? It will be up to the judicial judge to decide on a case-by-case basis, it being specified that this type of ministerial position will probably influence his/her sovereign assessment.
The question of the application of the concept of force majeure has already been raised during previous epidemics, such as SARS in 2003, H1N1 in 2009, or Ebola in 2014.
For the record, according to Article 1218 of the Civil Code, force majeure is characterized cumulatively by:
The mere existence of an outbreak is not in itself sufficient to constitute force majeure. In any event, the above conditions must be respected.
In the past, French case law has had occasion to rule out the classification of force majeure invoked on the grounds of an epidemic (i) when there was no causal link between the Ebola virus and the decline in the company's activity1, (ii) when the Ebola virus had not made the performance of the obligations impossible2, (iii) when the Dengue fever epidemic was recurrent and therefore foreseeable3, and (iv) when the presence of the H1N1 virus had been widely announced even before the implementation of health regulations4.
It will be incumbent on the contractor who invokes it to demonstrate that the conditions of force majeure are met, and in particular the impossibility of implementing appropriate measures enabling the performance of its obligations, as well as the causal link between the Coronavirus and the impossibility of performing its obligations.
With regard to unforeseeability, it could be considered that this condition is met for contracts entered into before the declaration of the spread of the virus. For contracts entered into on or after that date, it could be argued against the party invoking force majeure that the condition of unforeseeability is not met.
It is important to note that the parties remain free to adjust the definition of force majeure in their contract, specifying what will be expressly considered or not as a case of force majeure by the parties. Reference could be made here to a more general notion, such as "any epidemic affecting the performance of the contract" or a specific virus, such as COVID-19.
According to the provisions of article 1218 paragraph 2 of the Civil Code: "If the impediment is temporary, performance of the obligation is suspended unless the resulting delay justifies termination of the contract. If the impediment is definitive, the contract is automatically terminated and the parties are discharged from their obligations".
In contrast to the Civil Code, which does not provide for a precise time limit to distinguish a temporary impediment from a definitive impediment, force majeure clauses very frequently stipulate a time limit beyond which either party may freely terminate the contract, after a period of negotiation to avoid termination. In view of the above, a force majeure clause should provide for a period of time appropriate to the stakes of the transaction and the interests of the parties before authorising termination of the contract.
If the COVID-19 is likely to constitute a cause of force majeure according to article 1218, it should be considered that certain companies will try to invoke a case of unforeseen circumstances, allowing the parties to renegotiate their contract under the conditions of article 1195 of the Civil Code. We speak of an unforeseeable event only if performance of the obligation has not been made impossible, but only more difficult by the debtor, either because he will obtain in return only a performance whose value will have considerably diminished, or because performance, without being impossible, will require greater effort on his part, and a longer period of time than was envisaged. Unforeseeability is therefore intended to play a preventive role, since the risk of annihilation or revision of the contract by the judge should encourage the parties to negotiate5.
However, it is recalled that the parties may contractually exclude the application of Article 1195 of the Civil Code relating to unforeseen circumstances or may adjust its conditions of application, in particular by adjusting the conditions of renegotiation and recourse to the judge for revision / termination of the contract.
Businesses operating in the food and agribusiness sector need access to the latest changes and developments from a legal team who have extensive experience focusing on the whole of the food and agribusiness value chain, advising clients worldwide on all aspects of their operations, including domestic and foreign investment acquisitions, initial public offerings, joint ventures, scientific cooperation agreements, international trade, land matters and technology licensing.