Contract Performance During the COVID-19 Health Crisis

Read our explanations of the various clauses that may lead to the non-performance of all or part of a contract entered into with your business partners during this health crisis. Which ones can be invoked? Are they justifiable? What are the implications for payment terms?

Lack of foresight

Do your contracts include clauses that allow you to address this situation with your customers or suppliers? ( hardship clauses)

• Provisions Regarding Difficulties in Performing the Contract
• Provisions Regarding Unforeseeable Circumstances: Contract Revisions, Renegotiations… (Contracts Effective October 1, 2016)

The Principle of Unforeseeability: Can COVID-19 serve as grounds for revising contracts?

The Cumulative Conditions for Unforeseeability

• Unforeseeablechanges in circumstancessince the contract was entered into: to be determined based on the contract date
• Execution that is excessively costly or difficult: to be proven
• Lack of acceptance of risk: Check the contract to see if there was an explicit waiver.

The revision of the contract does not prevent its performance—including the payment of invoices.

Force Majeure

Do your contracts include a force majeure clause that allows you to suspend your obligations?

The cumulative conditions for force majeure (Article 1218 of the Civil Code):

• An event beyond the debtor's control
• An event that could not reasonably have been foreseen at the time the contract was entered into
• An event whose effects cannot be prevented by taking appropriate measures during the performance of the contract
• An event that prevents the debtor from fulfilling its obligation

Force majeure makes it impossible to perform the contract. Judges assess such cases on a case-by-case basis.

The Consequences of Force Majeure

• If the impediment is temporary, performance is suspended unless the delay justifies termination of the contract. Performance resumes as soon as the impediment ceases.
• Either the impediment is permanent: the contract is automatically terminated, and the parties are released from their obligations. The termination is retroactive, and restitution may be required.
• The party that is prevented from acting is exempt from liability
• Force majeure does not apply to payment deadlines

The Defense of Non-Performance

(Articles 1217, 1219, and 1220 of the Civil Code)

A party may refuse to perform its obligation (even if it is due and payable) if the other party fails to perform its obligation and if that failure is sufficiently serious.

The Preventive Defense of Nonperformance

A party may suspend performance of its obligation when it is clear that the other party will not perform by the due date and the consequences of such nonperformance are sufficiently serious.

Please note that these procedures are carried out at the risk of the party making the request. It will be necessary to demonstrate the seriousness of the situation and whether the conditions for the suspension of reciprocal obligations are met.

Health Emergency Law No. 2020-290 of March 23, 2020, published in the Official Journal on March 24, and Ordinance No. 2020-306 of March 25, 2020, address this issue. The aim is to suspend penalties for breach of contract:

• Article 4: Extensions, Suspension of Penalties, Liquidated Damages Clauses, Termination Clauses, and Forfeiture Clauses
• Article 5: Amendments and Renewal of Agreements; Notice Periods

It should be noted that the government has not yet issued an order addressing payment terms between customers and suppliers —an order that would authorize late payments beyond the maximum payment period.