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Supply chain disruption

Force majeure

Under French Law, the force majeure is defined by the French Civil Code as an event:

• which is beyond the control of the obligor
• which could not have been reasonably foreseen at the time of the contract execution
• the effects of which cannot be avoided by appropriate measures (this must make the performance of the contract impossible and not just more expensive or complicated), for example decisions of the public authorities, qualified in law as “fait du prince”, limiting and prohibiting the assembly and movement of persons and closing some establishments are circumstances of force majeure constituting an insurmountable obstacle to the performance of the performance of contractual obligations

If the effects of the force majeure are temporary, the performance of the obligation is suspended unless the delay which may result from this suspension justifies termination of the contract. If the effects are definitive, the contract is automatically terminated and the parties are discharged of their obligations without being liable for damages.

Force majeure applies if the three characteristics above are met regardless of whether the contract contains a specific force majeure clause. In the absence of a specific clause, the assessment of the force majeure nature of an event is made by Courts for each individual case.

However, it is possible to contractually amend, complete or restrict the definition given by the French Civil Code or even list (in a restrictive or indicative manner) the events constituting a force majeure in the parties’ intent. Thus, the contract drafting should be analyzed as the key requirements to claim force majeure will rely upon the wording of the force majeure clause. In that regard, it should be noted that in summary proceedings before the Commercial Court of Paris, although the performance of the obligation was not really impossible, the court considered that force majeure was characterized because the contract specified “an event making it impossible for the parties to perform their obligations under reasonable economic conditions.” This is the first decision to have retained force majeure because of the COVID-19 epidemic.

Under French law, in the event of a change of circumstances (typically economic circumstances) which, without totally preventing a party from performing the contract, renders performance excessively onerous, a party may, under certain circumstances, request a renegotiation of the contract and, in case of refusal or failure of this renegotiation, ask for a court to revise or terminate the contract.

Two other conditions must also be fulfilled:

• the change in circumstances could not have been predicted at the time the contract was entered into
• the party affected by the change of circumstances had not assumed such risk

If these conditions are met, Article 1195 of the French Civil Code provides for a three-stage process: 

• the affected party can request its counterparty to renegotiate the contract, while continuing to perform its obligations during the renegotiation
• in the event of refusal of the other party to renegotiate, or if the renegotiation is not successful, the parties may agree to terminate the contract on agreed date and conditions. Alternatively, the parties may mutually request the judge to adapt the contract
• if the parties do not reach an agreement within a reasonable time period, the judge may, at the request of a party, revise the contract or terminate it

This legal regime may however be contractually excluded or amended by the parties. Its application would therefore depend on the terms of the contract.

This “hardship” mechanism could be considered for instance, if one party has the means to circumvent the consequences of the COVID-19 crisis, thus rendering the force majeure difficult to invoke. A renegotiation of the contract could therefore be requested of the other contracting party if those appropriate means render the execution of the obligations under the contract particularly onerous.

Insolvency and restructuring

Creditors’ rights have been preserved during the sanitary lockdown (March – June 24th), as time limits to act against insolvent debtors have been suspended. On the other hand, debtors’ rights have also been greatly enhanced, as additional means have been given to the court-appointed administrators and receivers in order to achieve a sustainable recovery plan that takes into account the financial and economic difficulties linked to the pandemic (such as plans extension, possibility to reschedule instalments). Therefore, we may expect some disputes regarding the features of upcoming recovery plans.

Health and Safety issues

Health and safety related claims (Labor)

The current virus circulation period has been challenging employers as to their safety obligations towards employees.

Two types of disputes should be monitored:

• first, as already discussed in the media during the shutdown period, disputes regarding employers’ obligation to involve staff representatives in defining company safety policies. The risk for companies is not a financial sanction but, as a result of summary proceedings initiated by trade unions or social and economic committees, the suspension of back-towork measures (or measures adjusting the working conditions)
• second, a litigation which has not arisen yet, but which is standing out: that of the employer’s liability as a result of an employee being infected by COVID-19. It is rather unlikely that in the end this liability will be frequently recognized (except for medical staff or for people specifically exposed to COVID-19 at work): employees will have difficulties establishing the link between their contamination and their work. However and in all likelihood, the legal debate will take place in several cases.

Health and safety related claims (criminal law)

The current situation may expose some businesses to criminal claims based on exposure to dangerous situations or causing danger to lives of others. These claims can be brought if a victim can demonstrate that he or she has been exposed to a danger by their employer, following the deliberate violation of a duty to ensure safety or to act in a prudent way.

Employment behavior issues / restrictive covenants

The COVID-19 crisis has significantly affected the situation of employment tribunals in France. Cases that should have been argued orally during the shutdown period were postponed to sometimes distant dates, while the registration of new cases was delayed. However, the courts have reopened and are now starting to reduce the amount of pending cases. Simultaneously, administrative procedures, especially regarding mutual termination agreement and dismissal of protected employees, were suspended during the shutdown period: since then, time limits have been running again.

Also, as to the substance of cases, the COVID-19 crisis will probably give rise to specific disputes: disputes on the employer’s safety obligation during that period, disputes by the state on the benefit of partial activity systems and, also, disputes relating specifically to the dematerialization of employment law procedures (for example can a dismissal interview be held by videoconference?).

Class actions

Proceedings before Commercial Courts have obviously been delayed but the activity is resuming quite quickly. As for proceedings commenced by consumers before Civil Courts, the situation is very different as the Courts are now extremely busy. For instance, almost no new cases registered before the Lower Courts (tribunaux de proximité) have been docketed since the surge of the pandemic. Also, we may expect that considerations of fairness and financial balance will be more important in light of the economic and social crisis caused by the pandemic.

Construction issues

Many disputes in France in construction matters currently relate to delay in completion and penalties, absence of payment by the owner of the constructions and bankruptcy of contractors etc. The situation is globally going to evolve in the near future as projections anticipate numerous bankruptcies in the coming weeks.

As part of the above subject matters, many construction projects were stopped but the conditions to restart (or start) the sites are quite restrictive because of the sanitary measures which are still in force. Indeed, construction guides have to be respected (for example the “BTP COVID-19” from the “OPPBTP”) and French administration is very careful that the distancing measures are duly followed (both the “CRAM” and the “Direccte” in particular).

To our knowledge, COVID-19 has not yet been considered by private definitive Court decision as a force majeure event for private contracts. On the contrary, the French Minister of Economy stated on 28 February 2020 that COVID-19 will be “deemed as a force majeure event for companies” regarding public contracts entered into by the state.

The recommendations concerning public contracts have a broader impact than state contracts strictly speaking and concern public structures as a whole (local authorities, major players such as SGP, SNCF and RATP).

This situation also highlighted the limitations of state jurisdictions and the need for alternative dispute resolution methods (DRB, mediation, arbitration) which worked efficiently during the period of lockdown thanks to modern means of communication.

Real Estate

Most disputes in France in this area currently relate to rent and/or service charges’ absence of payment. Indeed, many tenants have stopped paying their rents and/or are currently in discussions with their landlords for rent-free periods and/or postponement of rent payments. Many legal arguments may be invoked (force majeure, landlord’s breach of its delivery obligations, unpredictability, equity and good faith, inexecution exception etc.) to such end but there is, currently, no clear and definitive Court decision which pronounces on the matter.

Insurance potential coverage on operating losses may also be considered by tenants in some cases but we are also seeing, for the commercial premises, some application of the specific “charter of good conducts between landlords and retailers.” These charters have been signed by several federations and unions, but its application is not limited to these and any commercial person which chooses to apply this charter can do it. In a nutshell, subject to its terms and conditions, this charter aims to open discussions between landlords and commercial tenants on rent flexibility (with or without considerations) and to provide a “rendez-vous” for this discussion.