The World Health Organization (WHO) has declared the Coronavirus (COVID-19) outbreak a pandemic.
As we face this health crisis, companies are becoming more and more concerned with their economic activities. Commercial relationships are facing major difficulties: order cancellations, postponement of events, etc. How is that going to impact your own business?
The first reaction must be to refer to the contractual provisions: is the “force majeure” event contractually defined? Does the contract provides for specific conditions with respect to termination? Have the parties expressly excluded any possibility of renegotiating the terms of the contract in case of unforeseeable circumstances?
The “force majeure” as an element of suspension or termination
The occurrence of a “force majeure” event has the effect of suspending the performance of the obligation when the impediment is temporary, or of causing the contract to be terminated when the impediment is permanent. The party which does not comply with its contractual commitments may also be excluded from liability if such failure to perform is due to a case of “force majeure.”
In the absence of contractual provisions, Article 1218 of the French Civil Code defines the “force majeure” event as “an event beyond the control of the debtor, which could not be reasonably anticipated at the time of the conclusion of the contract and whose effects cannot be avoided by appropriate measures” and which “prevents the debtor from performing his obligation”. In order to characterize the “force majeure”, the judges carry out a case-by-case analysis of the situation. There is no standard case law that could apply to all cases, including epidemics.
The main difficulty in case of an epidemic such as Coronavirus is that the situation is changing rapidly. In particular, the appreciation of the irresistible nature of the epidemic is very likely to be modified. In Italy, the successive decrees adopted by the Italian Government have progressively increased the restrictions and bans on movement and assembly, thus substantially altering the legal analysis of the consequences of the epidemic on contracts concluded with Italian partners and/or performed on the Italian territory.
The “imprévision” as an element of renegociation
The theory of “imprévision” provided for by Article 1195 of the French Civil Code could also be invoked in order to force the other party to revise the terms of the contract. This theory allows to request a renegotiation of the contract, the performance of which has become excessively onerous in the light of circumstances that were unforeseeable at the time the contract was concluded.
Particular attention should be paid to the contracts that will be concluded in the coming weeks. Since the unforeseeable nature of the circumstances allowing the renegotiation of the contract or of the “force majeure” event is assessed at the day of the conclusion of the contract, this qualification could be discussed in the light of the information available to date. Here again, a case-by-case analysis should be carried out in order to determine whether the extent and duration of the epidemic could be anticipated.
In the event of a dispute, the jurisdiction clauses that may be included in the contracts must also be closely analyzed. Amicable settlement should not be disregarded, especially if it is an obligatory prerequisite for any legal proceedings.
Our team is at your disposal to assist you in this context.