The emergence of Covid-19
has - and will have - many repercussions on international trade and more
generally on the business world, especially because of the sudden establishment
of total containment in many countries, stopping so-called
"non-essential" activities[1].
Many companies have found
themselves unable to perform their contracts. On 28 February 2020, the Minister
of the Economy and Finance, Bruno Lemaire, stated at a meeting with the social
partners: "The State considers the
coronavirus to be a case of force majeure for companies"[2]. But how many have been exonerated from the
consequences of not fulfilling their obligations? Although the concept of force
majeure or "act of God" is
internationally recognized, its application is not harmonized at the
international level, particularly given the troubled times we are going
through.
What is the current
panorama of force majeure allowing - or not - companies prevented from being
penalized because of their inability to perform?
Force
majeure, a legal tool at the service of prevented companies?
A force majeure event is
generally defined as an event that is beyond a person's control and that does
not depend on his control. It is thus characterized by two elements in French
law: its unpredictability and its irresistibility[3].
In case of force majeure,
the debtor can be exonerated from his liability for non-performance of his
obligations temporarily or definitively[4].
It should be noted that case law however traditionally rejects the qualification
of force majeure to justify the non-performance of an obligation to pay a sum
of money[5].
This possible exemption may
have important consequences on a business relationship, so that force majeure
is generally defined by law, as it is the case in France, in Article 1218 of
the Civil Code[6].
However, the contracting
parties are not bound by the definition contained in Article 1218 of the Civil
Code and can, therefore, set it aside or modify it, a clause extending the
cases of force majeure being valid between professionals[7].
Force majeure may thus be
provided for by a contractual clause defining or specifying the conditions
allowing a party to be partially or exonerated from its contractual
obligations. These clauses come in
different forms.
They may include an
exhaustive list of events that can be qualified as force majeure.
Thus, certain clauses
expressly mention "epidemics"
or "pandemics", which will
enable the parties to invoke exemption from their obligations under Covid-19.
Some clauses provide that
the parties will be exonerated from their obligations by "act of government"[8].
Does a containment decide by a state enter into this case of force majeure?
Sometimes, the contractual
clause does not mention particular events but refers to "events beyond the reasonable control of the
parties"[9].
The question then arises as to the inclusion of pandemic in the definition of
force majeure.
Finally, what is the
situation in countries where force majeure is not codified and where contracts
do not stipulate a specific clause for pandemic cases? Can the doctrine of
unforeseeability or even frustration come to the rescue of the parties
prevented?
Legislative
overview of force majeure
The notion of force
majeure, a French law concept, has been widely extended in the international
community[10]:
- In Europe, Spanish law
mentions the doctrine of force majeure in article 1105 of the Civil Code[11],
which is intended to apply only in the absence of any specific agreement to the
contrary between the parties.
Italian law, while not
providing a legal definition of force majeure, provides, in article 1256 of the
Italian Civil Code[12],
for the extinction of the obligation when, for a reason not imputable to the
debtor, such performance becomes impossible.
Conversely, England and
Germany have not legislated on the question of force majeure. However, the
parties to a contract remain free to agree on the allocation of risk and the
determination of an event of force majeure.
- In Africa, there are
provisions about force majeure in the French-speaking States that have codified
civil law (notably Mali, the Republic of Guinea, Senegal and Côte d'Ivoire).
Thus, Article 1128 of the
Guinean Civil Code states that 'there is
no liability if the harmful event is the consequence of a force majeure or a
fortuitous event, that is to say, of an external, insurmountable and
unforeseeable event'. [13]
The Code of Civil and
Commercial Obligations of Senegal in article 126, the Code of Obligations of
Mali in article 20 and the Code of Goods and Obligations of Côte d'Ivoire[14]
also, retain this definition.
In Algeria, the Civil Code
provides for exemption in cases of force majeure but does not define it[15].
Nevertheless, the amended law of 28 April 2005 on hydrocarbons and the mining
law of 4 July 2001 use the same definition of force majeure as in France, considering
the criteria of unpredictability, irresistibility and the external nature of
the event in question[16].
In Morocco, the Dahir
forming the Code of Obligations and Contracts defines force majeure in Article
269 as being: "force majeure is any
event that man cannot prevent, such as natural phenomena (floods, droughts,
storms, fires, locusts), enemy invasion, the act of the prince, and which makes
it impossible to perform the obligation. A cause that could have been avoided
is not considered to be force majeure if the debtor does not show that he has
taken all possible care to guard against it. A cause which was caused by a
previous fault of the debtor is also not considered as force majeure” [17]. It
provides as follows: "No damages are
payable where the debtor justifies that the non-performance or delay is due to
a cause which cannot be attributed to him, such as force majeure, acts of God
or the creditor's residence"[18].
Finally, as regards
Tunisia, it adopts the same definition as Morocco and provides the same
provisions in Articles 282 and 283 of the Code of Obligations and Contracts[19].
There are also Ohada
provisions on force majeure, and in particular Articles 294 and 295 of the
Revised Uniform Act on General Commercial Law, which respectively provides that
"a party is not liable for
non-performance of any of its obligations if it proves that such non-performance
is due to an impediment beyond its control, such as, in particular, the act of
a third party or a case of force majeure. A case of force majeure is an
impediment that is beyond the control of the Company and which cannot
reasonably be foreseen in its occurrence or its consequences", and:
"when the non-performance by one of
the parties results from the act of a third party entrusted by it to perform
all or part of the contract, it is not exonerated from its responsibility”[20].
- In Asia, Chinese law also
provides for a doctrine of force majeure, which allows contracting parties to
terminate a contract or excuse non-performance of certain contractual
obligations in the event of force majeure or significant adverse change.
Article 117 of the Contract Law of the People's Republic of China refers to
"objective circumstances that are
unforeseeable, unavoidable and insurmountable"[21].
China has dealt with force
majeure in the context of epidemics such as SARS. In 2003, the Supreme Court of
China ruled that if a contract could not be executed due to the outbreak of
SARS or any administrative measures taken against SARS, this should be
considered an event of force majeure[22]. Regarding the Covid-19 epidemic, the China
Council for the Promotion of International Trade states that China has
reportedly issued 4,811 force majeure certificates since March due to the
epidemic for contracts worth 373.7 billion Chinese yuan ($53.79 billion)[23].
There is also some legal
recognition of the doctrine of force majeure in Japan through Article 419-3 of
the Japanese Civil Code[24],
which provides that an obligation to pay a sum of money cannot be excused or
waived based on force majeure unless otherwise agreed by the parties. In the
absence of a force majeure clause in the contract, it is still possible to
request the cancellation or suspension of the obligations or the renegotiation
of the terms and conditions of the contracts[25].
- Regarding the American
continent, there is no federal law in the United States governing force
majeure, as matters relating thereto are governed by state law. Nevertheless,
many States have adopted Article 2 of the Uniform Commercial Code, which
governs the sale of goods and which contains a provision to the effect that in
certain circumstances non-performance may be excused because of unforeseeable
events beyond a party's control. For example, California has a section of the
Civil Code that allows a contract to be annulled for "irresistible and
overwhelming cause[26].
- Brazil has a general rule
in its civil code that the defaulting party can escape liability in case of
force majeure. Beyond the legal definition, the parties may extend or specify
the consequences of force majeure by written agreement[27].
In the field of
international law, Article 7.1.7 of the UNIDROIT Principles provides that
"[t]he obligor shall be exempt from
the consequences of its non-performance if it establishes that such
non-performance is due to an impediment beyond its control and that it could
not reasonably be expected to have taken it into account at the time of the
conclusion of the contract or to have prevented or overcome it or to have
prevented or overcome its consequences"[28].
Finally, in terms of
arbitration, the ICC Commission on Commercial Law and Practice prepared a new
force majeure clause in March 2020[29].
This model clause can either be incorporated into a contract by reference to
its long version or be inserted directly into the contract in its shortened
form. The model clause defines the elements of force majeure by the three
classical characteristics: unpredictability, irresistibility, and externality.
It provides for the suspension of performance and release from liability in the
event of force majeure. Nevertheless, the party affected must mitigate the
effects of force majeure.
The clause also provides a
non-exhaustive list of alleged events of force majeure, including epidemics[30].
If one of the events on the list concerns the dispute, the first two criteria
are presumed to be met and the affected party will only have to prove the
existence of the last criterion.
As for investment
arbitration, apart from the provisions of the ICL draft articles on force
majeure[31],
many ICSID tribunals have ruled on the notion of force majeure as a state of
necessity, notably in the famous Argentine awards.
In the LG&E v.
Argentina award[32],
for example, the arbitral tribunal recognized the impact of the economic
crisis. It accepted Argentina's defense about the state of necessity and
excluded its liability for damages caused to foreign investors.
Thus, many countries and
institutions have instruments that consider and/or govern force majeure, or
allow the parties to enter into contractual clauses defining and governing the
consequences of force majeure.
However, their application in
the current context is still uncertain.
Overview
of decisions recognizing the Covid-19 epidemic as an event of force majeure
Decisions on the legal
nature of Covid-19 remain rare.
The Court of Appeal of
Colmar (France) in a decision of 12 March 2020 n°20/01098 was the first to
qualify the Covid-19 epidemic as force majeure[33].
In this case, it concerned
a person who was unable to attend a hearing concerning his administrative
detention because he had allegedly been in contact with other persons infected
with the virus.
The Court sought to
demonstrate that there were no possible alternatives that would have allowed
the defendant to attend the hearing.
Even though this decision
was not taken in the context of a contract, it highlights that the assessment
of the Covid-19 epidemic as an event of force majeure is highly casuistic, and
will, therefore, be assessed on a case-by-case basis.
Concerning contractual
relations, the President of the Paris Commercial Court, in an order dated May
20, 2020 opposing Total Direct Energie and EDF, recognized that the health
crisis related to Covid-19 constituted a case of force majeure, allowing the
suspension of contractual obligations. The case concerned the delivery and
payment of quantities of electricity for which Total Direct Energie was liable
to EDF[34].
India has also decided to
recognize Covid-19 as an event of force majeure. The Delhi High Court, in a
case brought by M/s Halliburton Offshore Services Inc. against Vedanta limited[35],
held that the containment of Covid-19 was prima facie an event of force majeure
and granted an interim injunction against the respondent's claims for bank
guarantees.
This case is particularly
interesting in that it concerned the extraction of oil, defined as an essential
commodity. However, the Court held that "the applicant was not engaged strictly speaking in the production of
oil, but rather in the drilling of wells, the activity of which is substantially
(...) hampered by the imposition of containment"[36].
Pending further decisions,
it must be noted that to recognize force majeure, the judges study the facts in
detail, which could lead to fears that not all claims related to containment
and the COVID pandemic are subject to the force majeure regime.
Alternatives
As analyzed above, there
are other legal tools to avoid the consequences of an impediment to
performance: the termination of the contract or its renegotiation.
Thus, if, for example, in
England, there is no legal provision concerning force majeure, there is another
concept that allows one to escape from one's obligations in the event of a
significant change in the circumstances of the contract: the doctrine of
frustration. It is a doctrine that developed in the wake of the 1863 Taylor v.
Caldwell decision[37],
which formally recognized the doctrine of frustration. In that case, two
parties had entered into a contract for the rental of a music hall for the
holding of concerts. After the contract was signed, but before the rental
dates, the music hall burned down. The contract was held to be impossible to
perform; Blackburn J. held that the absolute liability provided for in Paradine
v. Jane[38]
would not apply in this case because there was an implied condition that the
music hall existed on the dates of the scheduled concerts. This had the effect
of excusing the parties from the contract.
This doctrine defines a
frustrating event as an event occurring independently of the fault of one of
the parties, which significantly alters the nature of the contractual rights
and/or obligations and which renders the performance of the contract by the
parties unjust. Frustration leads to the termination of the contract and not to
the suspension of the performance of obligations such as force majeure.
However, the frustration test is very strict and therefore difficult to prove[39].
Thus, if the arrival of the
coronavirus has only delayed performance of the contract or increased the costs
of performance, it is unlikely that the doctrine of frustration can be applied[40].
This doctrine of
frustration refers to the theory of unforeseeability, which is an alternative
offered in French law since the Order No. 2016- 131 of February 10, 2016, and
which allows the parties to request the revision of the contract for
unforeseeability according to Article 1195 of the Civil Code[41]:
in case of unforeseeable change of circumstances, the penalized party can
request the renegotiation of the contract and, in case of failure, the parties
may agree to the termination of the contract, at the date and under the
conditions they determine. Failing this, the matter may be referred to a court
for adaptation of the contract or its termination.
Thus, the contingency
clause allows a party to an international contract to invoke the existence of a
change of circumstances, unforeseeable at the time of the signing of the
contract and which would make the performance of the contract difficult but not
impossible, and which could thus lead to a renegotiation of the contract or
modification, to relieve the contracting party overburdened by the
circumstances[42].
[1] Decree No.
2020-293 of 23 March 2020 prescribing the general measures necessary to deal
with the covid-19 epidemic in the context of a state of health emergency.
[2] Statement by
Mr. Bruno Le Maire, Minister of Economy and Finance, on the economic impact of
the COViD-19 epidemic, in Paris on 28 February 2020.
[3] Cass. ass.
plén., 14 April 2006, n° 02-11.168 et n° 04-18.902.
[4] Article 1218 of the French Civil Code
provides that: 'There is force majeure in contractual matters when an event
beyond the debtor's control, which could not reasonably have been foreseen at
the time of the conclusion of the contract and the effects of which cannot be
avoided by appropriate measures, prevents the performance of his obligation by
the debtor (...).
[5] Cass.
Com., 16 Sept. 2014, n° 13-20.306
[6] Article 1218 of
the French Civil Code.
[7] [7]
Cour de cassation, chambre commerciale, 8 July 1981, n°79-15626.
[8]. Will Covid-19
trigger a force majeure clause? Out-law guides, Faye Moore, Pinsent Masons.
[9] Ibid.
[10] Force majeure tracker, Baker McKenzie, May
2020
[11] Article 1105 of
the Spanish Civil Code provides that "apart from the cases expressly
mentioned in the law and those in which the obligation so declares, no one
shall be liable for events which could not have been foreseen or which, having
been foreseen, were unavoidable".
[12] provides that:
'an obligation is extinguished when, for a reason not imputable to the debtor,
performance becomes impossible'.
[13] Article 1128 of the Guinean Civil Code
[14] Article 126 of the Code of Civil and
Commercial Obligations of Senegal; Article 20 of the Code of Obligations of
Mali; Article 1146 of the Code of Property and Obligations of Côte d'Ivoire.
[15] Article 127 and
138 of the Algerian Civil code.
[16] Professeur Ali Bencheneb «Le droit
algérien des contrats», 2ème édition, EU de
Dijon, p. 282
[17] Article 269 of
the Moroccan Code of Obligations and Contracts.
[18] Article 268 of
the Moroccan Code of Obligations and Contracts
[19] Articles 282
and 283 of the Tunisian Code of Obligations and Contracts.
[20] Articles 294
and 295 of the Revised Uniform Act on General Commercial Law
[21] Article 117 of
the Contract Law of the People's Republic of China
[22] Opinion of the
Supreme People's Court on the Trial and Application of People's Courts for the
Prevention and Control of the SARS Infectious Epidemic, 11 June 2003, Article
3, §2.
[23] La semaine
juridique - édition générale - N° 12 – 23 mars 2020, p. 558.
[24] Article 419-3
of the Japanese Civil Code; Force majeure tracker, Baker McKenzie, May 2020.
[25][25] COVID-19, l'antidote contractuel, Lionel
Vincent, CCI France Japon ; Baker McKenzie, may 2020.
[26] Section 1511 of the California Civil Code
entitled "Causes Excusing Performance", which provides that a party's
performance may be excused, in whole or in part, "when it is prevented or
delayed by an irresistible, superhuman cause, or by the act of public enemies
of that State or the United States, unless the parties have expressly agreed
otherwise.
[27] Article 393 of
the Brazilian Civil Code.
[28] Article
7.1.7 UNIDROIT principles.
[29] ICC Force Majeure and Hardship Clauses, march
2020.
[30] Force majeure clause, article 3, e), long version, ICC.
[31] Article 23 of
ICL drafts articles.
[32] LG&E Energy
Corporation v. Argentine Republic, ICSID Case No. TRA / 02/01, Price, July 25, 2007, ¶ 109
[33] Cour d’appel de
Colmar, 12 march 2020 n°20/01098.
[34] Tribunal de
commerce de Paris, Ordonnance de référé du 20 May 2020, RG n°2020016407.
[35] High Court of Delhi, New Delhi, M/s
Halliburton Offshore Services Inc. c. Vedanta Limited, 20 Avril 2020, 697/2020
[36] Ibid.
[37] Taylor v.
Caldwell, England and Wales High Court (Queen's Bench Division), 6 May 1863
[38] Paradine v.
Jane, England and Wales High Court (King's Bench Division), 26 march 1647
[39] Force majeure, dictionary Thomson Reuters,
Practical Law.
[40] Force majeure/hardship clauses and
frustration in English law contracts amid COVID-19, Norton Rose Fulbright, May
2020.
[41] Article 1195 of
French Civil Code.
[42] Mestre J., Les principales clauses des contrats
d'affaires, déc. 2018, Lextenso
