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Trending: Call for Papers Volume 3 | Issue 2: International Journal of Advanced Legal Research [ISSN: 2582-7340]

The Effect Of The Pandemic On The Execution Of The International Public Contract

Introduction:

Different industries and legal relations have been hard hit by the aggressive measures imposed by the authorities worldwide to face the confirmed cases of COVID 19 have soared worldwide with fatalities. Therefore, there are many voices calling for the necessity of declaring this epidemic as a “Force Majeure”, and many questions arose about the impact of the epidemic on contracts and legal agreements. Therefore, it became necessary to clarify the effect of the pandemic on the execution of the international administrative contract? Is it considered a Force Majeure? And the rights and obligations of each party during the period of the pandemic? 

      

In fact, most civil law jurisdictions apply a different regime and rules to public contracts entered into with the state or a public agency and private contracts between private parties. Moreover, disputes are resolved by administrative courts for public contracts, and civil or commercial courts for private contracts. 
Regarding the Corona Virus and Force Majeure, we can find in common law countries that Force Majeure exists only as a contractual concept. Force Majeure in such jurisdictions may entitle the contractor to an extension of time or to termination without fault but not to compensation for extra costs and losses[1]. We all know that this is probably not the ideal outcome for contractors facing substantial additional charges as a result of the Pandemic! 

Therefore, another legal concept generally referred to as “Hardship” has been created, which may provide to the contractor an alternative way to claim compensation or to ask for a renegotiation of the onerous terms of a contract in order to avoid termination[2].
By contrast, most civil law countries acknowledge Force Majeure as a legal concept, which is generally enshrined in codified law and expanded upon by case law[3]. It became more complicated and the author has to clarify how the Pandemic may qualify as Force Majeure, in both common and civil law countries, and its consequences. The analysis includes France, Germany, India, and International law.

In France:

· Force Majeure: 

Article 1218 French Civil Code stipulated that “There is force majeure in matters relating to a contract when an event, beyond the control of the debtor that was not foreseeable at the time of the contract and whose effects could not be avoided by appropriate means, prevents the debtor from performing his obligations”.
French Courts have established that “to consider an event as a Force Majeure, It had to be:

  • Unforeseeable: the event could not have been reasonably foreseen at the time of the contract and French Courts expected an experienced contractor to foresee most events that could negatively impact the works and;
  • Irresistible: It had to be beyond the control of the contractual Parties and could not be prevented or avoided by adequate steps; and 
  • External: the occurrence of the event did not have any connection with the Parties[4]
  • The burden of proof: The party seeking to invoke force majeure must prove that these conditions are met. Such party will typically need to show a causal link between the force majeure event and the failure to perform contractual obligations[5]

Additionally, the Court of Appeal of Colmar decision, rendered on March 12, 2020, has already ruled that COVID-19 is a force majeure event. We might assume that this case law was the first one issued in France on this issue[6].

Hardship in France

The legal term of Hardship (“théorie de l’imprévision” in French) has derived from the jurisprudence of the council of state. In addition, article 1195 of the French Civil code provided that:

“If a change of circumstances, unforeseeable at the time of the contract, renders performance excessively onerous for a party who has not agreed to bear the risk, therefore, such party is entitled to ask the other party for a renegotiation of the contract. It will however continue to perform its obligation during the renegotiation period. In case of refusal or failure of the renegotiation, the parties may agree to terminate the contract at a date and with the effects of their choice”.

Basically, If the occurrence of an unforeseeable event makes it very difficult or substantially more onerous for the contractor to continue the performance of its obligations as agreed in the contract, hardship may be invoked by the contractor of a public contract. Additionally, the contractor is entitled to seek compensation and/or to ask for a renegotiation of the onerous terms of the contract in the event the economic balance of the contract is likely to be disrupted by some 30% or more[7].

GERMANY

In order to face the Covid-19 Pandemic, Germany has passed “The Law on Mitigating the Consequences of the COVID-19 Pandemic in Civil, Bankruptcy and Criminal Procedure Law”[8].

With regards to Contract Law, the legislator provides, by the new and temporary Art.240 § 1 of the German EGBGB, a “right to refuse performance” for consumers and micro-businesses (and a maximum of EUR 2 million as an annual turnover) until June 30, 2020 (expanded to 30 Sep 2020). These apply to essential long-term contracts which have been concluded before March 8, 2020. This includes, particularly, contracts for the supply of electricity and gas or telecommunications services, and for water supply and disposal.
According to this article, contractors who are unable to fulfil their contractual obligations (due to the COVID 19 Pandemic) are granted the right to temporarily refuse or cease their performance without being subject to legal responsibility. This also excludes liability for damage caused by delay and an obligation to pay interest. 

However, the exercise of the right to refuse performance is excluded if the contractual creditor cannot be reasonably expected to exercise it. In this case, the micro-entrepreneur has the option of being released from the contract[9].

India

The concept of force majeure finds its genesis under the Indian Contract Act, 1872. When it is relatable to an express or implied Clause in a contract, it is governed by Chapter III dealing with contingent contracts, and more particularly, Section 32 thereof. A force majeure event which occurs de hors the contract, it is dealt with by a rule of positive law under Section 56 of the Act. Section 56 of the Act deals with the agreement to do an impossible act or to do acts which, afterwards become impossible or unlawful. The approach of the Courts has been to examine the issue based on the facts of each case and relief has been granted to parties accordingly.

INTERNATIONAL LAW

It is a fact that there are no European regulations or international conventions governing such issues, however, support may be provided by the Vienna Convention of 1980 and by the UNIDROIT principles. 

  • According to Art.79 of the 1980 Vienna Convention on Contracts for the International Sale of Goods (CISG) “failure to perform a contractual obligation which has caused by an impediment (like Force Majeure), beyond the debtor’s control, and not foreseeable at the time the contract was signed is not a source of the contractor liability”[10].
  • More generally, the principles of international trade (UNIDROIT) provide (Art. 6.2.2.) that “if an unforeseeable and uncontrollable event threats the fundamental balance of the contract (either by reducing the value of the performance or increasing its cost), the disadvantaged party is entitled to ask the other party to renegotiate the terms of the contract and, in the alternative, to ask for the termination the contract[11]

Finally, the author refers that, with the rapid spread of COVID-19 and the expansion and escalation of government measures taken to combat and contain the outbreak, we are likely to see more cases of parties declaring force majeure.
Additionally, we recommended that affected companies should review the force majeure provisions in their contracts carefully and consider the implications if such force majeure provisions are to be invoked. Companies may also consider drafting their force majeure clauses more broadly in the future to clearly include epidemics and public health emergencies, without the need to rely on a force majeure certification. 

References

[1] (Fn) ALBARIAN A., 2009.
[2] (Fn)K.Zweigert, H. Kötz, 1998.
[3] (Fn)CHAGNY M., 2015. And P. Stoffel-Munck ed. 2015.
[4] (fn) CHAMPALAUNE C., 2015.
[5] (B) Klaus Peter Berger (2004); see also Hubert Konarski (2003).
[6] (Fn)FAGES B., 2009.
[7] (B) See E.Baranauskas, P.Zapolskis 2009.
[8] (S) For example, Germany has already made COVID-19 specific changes to the Introductory Law to the Civil Code which permits consumers and small businesses to withhold performance in certain circumstances. These changes are currently set to expire at the end of June 2020 (see Art.240, §1 “Moratorium”).
[9] (B) See M. Schmidt-Kessel and C. Möllnitz, (2020).
[10] (S)It provided that “(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences………”. See more at : http://cisgw3.law.pace.edu/cisg/text/e-text-79.html
[11](B) https://www.unidroit.org/instruments/commercial-contracts/unidroit-principles-2010/403-chapter-6-performance-section-2-hardship
Author: Mohamed Gomaa, Judge at The Egyptian Council of State.

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