COVID-19 and contracts: a “Safe Harbor” period of time

14 April 2020
Frédéric Saffroy, Catherine Robin, Justine Clerc and Jeanne Quéneudec

With the lockdown harming the economy, the French Government enacted special measures to provide both flexibility and protection regarding contractual and administrative deadlines. Order No. 2020-306 dated 25 March 2020 on “the extension of time limits during the state of health emergency and the adaptation of procedures during the same period” created a “Safe Harbor” time period during which contractual deadlines and associated sanctions are suspended or postponed.

The “Safe Harbor” time period at a glance: from 12 March 2020 to 24 June 2020

Contract performance difficulties

Contracts usually contain penalty, termination or default clauses intended at protecting one party if the other party fails to perform its obligations within the contractually agreed time limits (e.g. delivery, payment, maturity).

(i) If this contractual time limit ends during the “Safe Harbor” time period, i.e. between 12 March and 24 June 2020, these clauses shall be deemed to not have taken effect.

These clauses will only take effect one month after the end of the “Safe Harbor” time period only, i.e. as from 25 July 2020, provided that the debtor has not performed its obligation in the meantime.

Example: In compliance with the termination clause of your contract, you gave your contractual partner formal notice to fulfil its obligation within 10 days from 6 March 2020. The deadline ends during the “Safe Harbor” time period, i.e. on 16 March 2020. This 10-day deadline will resume as from 25 July 2020 and will therefore end on 3 August 2020.

(ii) If the enforcement of a penalty clause – or the penalty payment – took effect before 12 March 2020, i.e. before the starting date of the “Safe Harbor” time period, it shall be suspended during that period. The countdown will then resume as from 25 June 2020.

Example: A contract provides for a daily penalty if the contractor does not perform its obligation by 27 February 2020 at the latest. On 28 February 2020, the creditor gave formal notice to his contractual partner to fulfil its obligation within 10 days. On 9 March 2020, the penalty payments start to apply. However, as from 12 March 2020, these periodic payments are suspended and will resume as from 25 June 2020 only, if the contractor has not performed its obligation in the meantime.

It is therefore necessary to systematically check:

- If the deadline to fulfil the obligation ends during the “Safe Harbor” time period, in which case its starting point is postponed until one month after the end of that period (i.e. on 25 July 2020), if the contractor has not performed its obligation by that time.

- If the penalty clause or the periodic penalty payments took effect before 12 March 2020, which implies the suspension of the penalty until the end of the “Safe Harbor” time period (i.e. 25 June 2020).

Termination or automatic renewal of contracts

If the deadline to terminate the contract or to give notice (to avoid its automatic renewal) ends during the “Safe Harbor” time period, this deadline is extended two months after the end of that period, i.e. until 24 August 2020.

Example: If you were not able to terminate a contract that is automatically renewed every 31 March, unless giving termination notice during the month before the "anniversary date", it will still be possible to terminate it until 24 August 2020.

Relationship with the French administration

Suspensions and postponements also apply to relationships with French central, regional and local administrations, public entities and bodies governed by public law (or by private law when they are in charge of public services), including social security bodies.

Decision, approval or ruling to be issued by the administration

If the time period during which a decision, an approval or a ruling from the administration shall/may occur or is deemed to have been taken, ends during the “Safe Harbor” time period, this deadline shall be suspended until the end of the “Safe Harbor” time period, i.e. until 24 June 2020.

If the countdown started to run before 12 March 2020, it shall be suspended until 24 June 2020. The countdown will start again as from 25 June 2020.

If the countdown started to run after 12 March 2020, its starting point is postponed until the end of that period: it will start again as from 25 June 2020.

Example: In case of foreign investments subject to prior authorization from the French Minister of the Economy, the authorization cannot be deemed to have been granted, in case of absence of reply within two months, if this period did not expire before 12 March 2020. Otherwise, the period is suspended and will run again as from 25 June 2020.

Verification of the completeness of a file, request for additional information for the examination of a request, public consultation or participation requested by the administration.

See the previous paragraph. The deadline is suspended or postponed, according to its expiry date or its starting point. This applies, for example, in case of an investigation by the administration.

You should also consult the web site of the concerned administration to find out how it operates during the lockdown (French Anti-Corruption Agency, Competition Authority, Dual-Use Goods Control Office, etc.).

Performance of inspections and work by companies or bringing companies into compliance with requirements

The above rule also applies:

- If the deadline laid down by the administration did not expire before 12 March 2020 (except where the deadline is issued by a Court), that deadline is suspended until the end of the “Safe Harbor” time period (i.e. 24 June 2020).

- If the deadline started during the “Safe Harbor” time period, its starting point is reported until the end of that period.

Example: In case of an order issued on 12 March 2020 by the General Directorate for Competition Policy, Consumer Affairs and Fraud Control (DGCCRF) to comply with a regulation, the deadline for compliance will only run as from 25 June 2020

For categories of decisions, procedures and obligations for which it is not appropriate to suspend time limits, for reasons of protection of the fundamental interests of the Nation, security, protection of health, public sanitation, decrees specify the applicable rules.

Examples: Operators of installations classified for the protection of the environment (ICPE), water structures (dikes, dams), mining installations, pipelines for transportation of hazardous materials, etc. (Decree No 2020-383 of 1 April 2020 derogating from the principle of suspension of deadlines during the period of health emergency related to the covid-19 epidemic).

Alerion’s Commercial Law and Compliance & Regulatory teams are at your disposal to assist you to review your case:

Catherine Robin, Frédéric Saffroy, Partners, Justine Clerc and Jeanne Quéneudec, Associates.