📌 || C O V I D – 1 9 : Can it justify a contractual suspension ?  ||
On 16 March 2020 the Government Council of Luxembourg has taken a new set of measures to limit the spread of the COVID-19. Only activities that are essential to maintain the vital interests of the citizens can be maintained (like health and food sectors). All artisanal and commercial activities which imply direct contact to customers are closed until further notice.
Commercial companies have been hit badly as they were forced to temporarily stop their activities. In this context, the travel disruptions and the restrictions on professional activities lead to various questions on contractual obligations.
Indeed, can a party decide unilaterally to suspend its obligations (of payment notably) or can it require its counterparty to suspend temporary the effects of the contract, even if the latter is not unable to perform its own obligations but the delivery of the service has lost interest due to the slowdown or the temporary closure of one party’s activity?
This situation is becoming a reality for businesses who have been obliged to close their shops but who are still contractually bound to the landlord for the rent of the shop, or to service providers working in connection with the activity of the store, such as security services, cleaning, technical maintenance and even electric or water consumption.
Can the theory of “force majeure” be invoked to suspend or terminate unilaterally a contract in the context of the COVID-19 pandemic?
An epidemic is not a “force majeure”.
The judicial precedents show that the mere existence of an epidemic alone is not enough to constitute a case of “force majeure”. On the other hand, the unprecedented restrictive measures taken by European governments (such as the closure of commercial spaces which welcome the public, restrictions on movement or even confinement), which are entirely exceptional, could be considered as constitutive of “force majeure”, due to their unpredictable and irresistible nature.
The debtor must prove an absolute impossibility.
In a contractual context, the legal concept of “force majeure” is notably enacted in article 1148 of the Civil code but without assigning any clear legal definition to the “force majeure” itself. According to case law and doctrine, the “force majeure” can be defined as unforeseeable circumstances that absolutely prevent a contracting party from fulfilling its contractual obligations. The parties can also contractually agree on the definition of “force majeure”.
Article 1148 of the Civil code provides that “No damages are due when, as a result of the “force majeure” or a fortuitous event, the debtor has been prevented from giving or doing what he was obliged to (…)”. The impossibility needs to be total and definitive. Indeed, the prevailing jurisprudence retains that serious events making difficult or more expensive the execution of an obligation are not sufficient to constitute a “force majeure”. As a result, even though the unprecedented coercive measures taken recently by the government could be considered as unforeseeable circumstances to benefit from the “force majeure”, the debtor needs in addition to prove the absolute impossibility for him to meet its contractual obligations and the direct link between this impossibility and the governmental measures.
The Luxembourg Code civil does not know the theory of unpredictability.
The French civil law reform entered into force on 1st October 2016 introduced in the French Code civil the theory of unpredictability. This theory has extended the powers of the judge who is now in a position to substantially modify the terms and provisions of an agreement under certain conditions. According to the new article 1195 of the French Civil code, in the event of an unforeseeable circumstance which (i) significantly increases the costs of execution of the agreement for one party and (ii) which was unpredictable at the time of conclusion of the agreement, the judge can either decide to adapt the terms of the agreement or terminate the agreement at the request of one party. Unfortunately, Luxembourg Civil code does not contain any similar provision and Luxembourg courts are generally reticent to modify the terms of a contract judicially.
There can be other grounds of suspension.
Suspension of contract may be found also in the exception of non-performance, if the counterparty does not perform its own obligations, or in special contractual clauses dealing with contractual suspension and setting out the cases allowing such a suspension and their effects on the parties’ obligations. It is hence essential to undertake a deep analysis of the contracts in place to verify whether they contain any appropriate provision protecting the interests of the parties in such an exceptional situation, as well as the terms of any insurance policy that may apply.
We can only hope that the Luxembourg Government would take soon appropriate economic measures to strongly support the Luxembourg economic players.
Please do not hesitate to contact us should you wish to obtain any additional information on this matter.
Your Faithfully,