France has just moved to stage 3 of the Covid-19 epidemic currently affecting the country. Many sectors (tourism, transport, events, hospitality, entertainment, culture, etc.) are already impacted by the sharp drop in demand and cancellations resulting from measures taken by public authorities and customer behavior.
In matters of public procurement, the Minister of Economy and Finance has publicly announced that the State's doctrine would be to consider Covid-19 as a case of force majeure intended to exempt the parties from their contractual obligations.
For the private sector, delays or impediments in the execution of the contract will notably be addressed in light of the concept of force majeure as defined by the contract itself (in which case it is to this definition that it will be necessary to refer to determine whether Covid-19 constitutes a case of force majeure) or, failing that, by Article 1218 paragraph 1 of the Civil Code according to which "there is force majeure in contractual matters when an event beyond the control of the debtor, which could not reasonably have been foreseen at the time of the conclusion of the contract and whose effects cannot be avoided by appropriate measures, prevents the performance of his obligation by the debtor."
It is recalled that, according to paragraph 2 of Article 1218, the severity of the force majeure event directly influences the scope of its exonerating effect. Thus, "if the impediment is temporary, the performance of the obligation is suspended unless the resulting delay justifies the termination of the contract. If the impediment is permanent, the contract is automatically terminated and the parties are released from their obligations under the conditions provided for in Articles 1351 and 1351-1.".
In the absence of a contractual definition specifying the case of epidemics, the universality of Article 1218 will force lawyers to determine whether the Covid19 phenomenon and/or the events that resulted from it were unforeseeable events at the time of concluding the contract, which became irresistible at the time of having to execute said contract, and will likely turn to case law.
The few decisions that have been handed down on this issue all point towards a refusal to equate an epidemic with a case of force majeure that could exempt the debtor of a contractual obligation from liability.
Thus, whether it is Dengue, H1N1 virus, Chikungunya, seasonal flu, avian flu, or even plague, the decisions published to date have all led to a refusal to recognize the existence of a case of force majeure.
Even though, given the scale of the Covid19 epidemic, a paradigm shift cannot be ruled out, particularly in view of the decisions taken by the executive branch which are themselves likely to influence the conditions for the execution of contracts, debtors should therefore assume that the impossibility of performing their obligations due to this epidemic does not necessarily exempt them from their contractual responsibility and should instead be encouraged to try, upstream, to negotiate with their creditors an adjustment to their contract.
In the absence of a negotiated solution, they may, unless their contract prohibits it, turn to Article 1195 of the Civil Code, under which "if a change in circumstances unforeseeable at the time of the conclusion of the contract renders performance excessively onerous for a party who had not agreed to assume the risk, that party may request renegotiation of the contract from its co-contracting party (...) In the event of refusal or failure of renegotiation, the parties may agree to terminate the contract, on the date and under the conditions they determine, or jointly request the judge to adapt it. In the absence of an agreement within a reasonable time, the judge may, at the request of a party, revise the contract or terminate it, on the date and under the conditions he sets.".
Heavily criticized when it was adopted because of the cumbersome renegotiation procedure it provides for, article 1195 could now become the best contractual remedy against the harmful effects of Covid19.
For professionals with business interruption insurance coverage, the question may arise as to whether losses related to Covid-19 are covered. However, in the absence of physical damage causing the business interruption, the very existence of a covered loss is likely to be lacking, unless the insurance contract specifically excludes coverage for epidemics.
In matters of travel and stays, Article L.211-14 II of the Tourism Code gives the traveler the right to terminate their contract without charge (but without additional compensation) in the event of "exceptional and unavoidable circumstances occurring at or near the place of destination" having "significant consequences on the execution of the contract or on the transport of travelers".
Here again, the question will arise as to whether Covid-19 meets the legal definition of exceptional circumstances, it being noted that judges could have a more flexible assessment of things when private consumers are involved.
Given these numerous uncertainties, the most appropriate recommendation is not to wait for the situation to worsen and to try to negotiate, with customers, sub-suppliers and business partners, a negotiated solution consisting of contractually organizing, by way of amendment, the postponement or cancellation of services that cannot be provided.
To this end, Arst Avocats has developed a "Covid19" clause which can serve as a basis for negotiation and will, of course, need to be adapted and supplemented in order to fit perfectly into the contract it is intended to be included in.
Feel free to contact us.
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