Partner Sylvie Gallage-Alwis and Associate Gaëtan de Robillard discuss the first court decision recognising the Covid-19 pandemic as a force majeure event, in the context of a debate between the key French electricity suppliers on the disputed Regulated Access to Historic Nuclear Electricity, in Legal Week.
It is in the context of a debate between the key French electricity suppliers on the disputed Regulated Access to Historic Nuclear Electricity (i.e. a scheme that entitles suppliers to purchase electricity from Electricité de France (“EDF”) at a regulated price, in volumes determined by the French energy regulator) that the first court decision recognising the Covid-19 pandemic as a force majeure event was rendered.
In substance, the dispute related to the implementation of the force majeure clause contained in the Framework Agreement concluded between Total Direct Energie (“TDE”) and EDF for the purpose of suspending their respective obligations under the said agreement as a result of a “significant decrease in consumption“.
The order of the Paris Commercial Court and the decision of the Paris Court of Appeal provide an interesting example of the recognition of Covid-19 as a case of force majeure. They illustrate the attention that the courts give to the wording of contractual force majeure clauses.
French Law defines force majeure in Article 1218 of the French Civil Code: “force majeure occurs in contractual matters when an event beyond the control of the debtor, which could not reasonably be expected at the time of the conclusion of the contract and the effects of which cannot be avoided using appropriate means, prevents the performance of the debtor’s obligation“.
However, this Article is not binding per se and co-contracting parties remain free to deviate from the legal definition. In the case examined by the Paris Judges, this is exactly what the parties decided to do, defining force majeure, in the disputed clause of the Framework Agreement, as “an extraneous, irresistible and unforeseeable event making it impossible to perform the parties’ obligations in reasonable economic conditions“.
This clause is quite interesting as it is not merely limited to performance becoming impossible. It extends the possibility for force majeure to be recognised when performance is possible but more costly and hence provides for more possibilities for the parties to invoke force majeure than French Law would have entitled them to.
Based on the contractual definition of force majeure binding the parties, the Paris Commercial Court considered that “the spread of the virus is obviously extraneous to the parties, is irresistible and was unforeseeable, as proven by the sudden nature and extent of its appearance“.
The “obvious” nature of the pandemic was not being discussed, which explains the brevity of the reasoning compared to the case law relating to the H1N1, Dengue Fever, Chikungunya and other epidemics, which were never recognised as force majeure events by French Courts.
Surprisingly, the Commercial Court ruled that it is the actual spread of the virus that is deemed a force majeure event, not the associated governmental measures (such as the lockdown or border closure measures that were taken to try to stop the outbreak) and this has triggered a lot of debate.
It is in this context that, despite the fact that it upheld the Commercial Court’s decision, the Paris Court of Appeal considered that the force majeure stems both from the Covid-19 pandemic and the governmental measures taken to stop the spread of the virus. According to the Court, the governmental measures have “a very significant impact on electricity consumption and the level of electricity prices“.
Obviously, in future cases, the party who decides to rely on the force majeure concept will still have to choose wisely which event exactly is a force majeure according to it (the virus, a specific governmental measure, all governmental measures, etc.), depending mostly on the wording of the applicable force majeure clause.
This is even truer for Common Law jurisdictions given that English common law will not apply force majeure to a contract that does not explicitly provide for it. The actual phrase ‘force majeure’ need not be used (although it commonly is) but parties will be required to explicitly set out the events that would excuse them from performing their obligations under the contract (or allow them to delay or suspend performance) in the event they arise.
This case law shows that case-by-case analyses will be the norm when it comes to force majeure identification. The review of the clauses is, therefore, a must. Claims filed against insurers for operating loss demonstrates this point as well. If no such clause is in the contract, businesses will have to refer to statutes and case law. This may change the whole outcome of the matter.