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Covid-19

Can the Coronavirus justify the non-fulfilment by companies of their contractual obligations?

The Coronavirus, also known as “COVID-19”, will be considered as a case of Force Majeure for companies for all public procurement of the State, declared the Minister for Economic affairs and Finance, Bruno Le Maire, on February 28, 2020.

What does French law provide?

Article 1218 of the French Civil Code defines the Force Majeure as “an occurrence beyond the debtor’s control, which could not have been reasonably foreseen when the contract was entered into and the consequences of which could not have been preventable”, which prevents performance of the contract.

To this day, many businesses which have production sites and sub-contractors in China have announced plant closures, resulting in major consequences for the whole global economy.

In this context, many economic actors will be tempted to invoke the Force Majeure to justify the non- performance of their contractual obligations and thus to escape any liability in this respect. But is this possible?

So far, Courts have unanimously ruled against declaring outbreaks such as the H1N1 pandemic, Dengue fever, or even Chikungunya as a case of Force Majeure1. Therefore, it is not obvious whether judges, who are vested with a power of appreciation, will retain such a characterization in regard to the Coronavirus.

However, this position could change as the French Government characterized the Coronavirus as a case of Force Majeure for companies of all public procurement of the State.

It is up to the companies to analyse the possible terms of their contracts and to determine if, at the moment of the conclusion of the contract, the Coronavirus outbreak, now qualified as a pandemic by the World Health Organization, was reasonably foreseeable and if appropriate measures could have been taken to prevent its consequences.

In any case, if the Coronavirus is declared as a case of Force Majeure, a notice should be provided to the counterparty as soon as possible, pursuant to the contractual terms, and its consequences should be assessed: suspending performance, duty to negotiate in good faith, termination of the contract, etc...

Furthermore, if a company manages takes appropriate measures to circumvent the effects of the Coronavirus, it may also try to renegotiate its contracts by implementing the renegotiation mechanism provided by Article 1195 of the French Civil Code due to unforeseen circumstances, if all the conditions are met. Here again, the judges are vested with a power of appreciation to assess whether these conditions are met, what changes should be made to the contract, or even its termination.

In any event, the occurrence of the Coronavirus should lead all economic actors and their advisers to rethink the drafting of their contracts in order to better anticipate their effects, it being specified that the definitions of Force Majeure and unforeseen circumstances are not of public order, so that they can be the subject of contractual negotiations.