Contractual flexibility in times of crisis
Nicola Kömpf
After the COVID crisis, the invasion of Ukraine and the economic sanctions imposed on Russia, economic actors are faced with a shortage of raw materials and energy.
Thus, the question arises as to how existing contracts can be adapted under French law and what strategies can be put in place when concluding new contracts.
1. Legal basis for adopting existing commercial contracts
The first idea is often to rely on a “force majeure” clause, but the application of Article 1218 of the French Civil Code presupposes that the contractual parties are faced with an event beyond the debtor’s control which could not reasonably be foreseen at the time of the conclusion of the contract and whose effects cannot be avoided by appropriate measures and which prevents the performance of the contractual obligation.
However, if it is only a temporary disruption, French law only provides for suspension of the contract during this period and termination in case of permanence.
The reference to force majeure, if however the debtor of the obligation can prove that the event was unforeseeable at the time of the conclusion of the contract, does not allow the modification of the contract, but only its suspension or termination.
The second possibility could be to rely on the theory of unforeseeability with reference to Article 1195 of the French Civil Code.
Indeed, this provision confers a right to renegotiate the contract in the event of a change in circumstances unforeseeable at the time of the conclusion of the contract which makes the performance of the contract excessively onerous for one of the parties who would not have agreed to conclude the contract if it had known the new circumstances.
Here again, the party wishing to renegotiate must not only prove the unforeseeability of the event giving rise to the request, but also that the new situation creates an imbalance in the contractual relationship.
Moreover, French law does not provide for a limitation in the duration of the negotiation and during this time the contract must be performed according to the original terms.
Only after the failure of the negotiations, one of the parties can, after a reasonable period of time, ask the judge for revision or termination, without knowing what the result will be.
2. Contractual arrangements to give more flexibility to the execution of commercial contracts
One solution is to define the concept of “force majeure” more broadly.
In addition, it is possible to include price revision clauses automatically or under certain circumstances.
Furthermore, it is strongly recommended that the conditions for renegotiating the contract are strictly regulated, as well as in the in the event of failed renegotiations.
However, care must be taken to ensure that contractual clauses are balanced to avoid infringing the provisions of Article L.442-1.I.2° of the French Commercial Code, providing for damages if one party subjects the other to contractual obligations that create a significant imbalance.
In a nutshell, the provisions of French law alone do not allow contractual parties to adapt easily their contracts, but French law is quite flexible, allowing for contractual clauses at the time of conclusion of the contract which give the necessary flexibility during the performance of the contract.
Nicola Kömpf, Partner