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03 Apr 2020

COVID-19 – Legal concepts in France and Algeria; A Civil Law Perspective

by Catherine Renault, Legal Director - Dubai

Introduction

Confirmed cases of COVID 19 have soared over 400 000 worldwide with fatalities crossing the threshold of 15,000, which has led the World Health Organisation (“WHO”) to upgrade the COVID 19 outbreak from a “public health emergency of international concern” to a “pandemic” (the “Pandemic”) on 11 March 2020. Europe is the new epicentre of the Pandemic. African and Middle East countries are now closing their borders and ramping up their responses in order to keep the spread of the virus at bay and mitigate its impact on their economic activities.

The construction industry has been especially hard hit by the aggressive measures imposed by the authorities worldwide. Supply chains are severely disrupted and working from home is not an option for labour, except for preliminary activities such as design and planning.

Although international construction contracts are often governed by the law of England or of some other common law jurisdiction, a significant number thereof are also governed by civil law in Europe, the Middle East and Africa.

This article is a sequel to the previous article regarding COVID 19 and Force Majeure in common law countries (https://www.systech-int.com/contractors-affected-by-covid-19-is-invoking-forcemajeure-the-easier-way-to-obtain-relief-andcompensation/), where Force Majeure exists only as a contractual concept. At common law, in the absence of a Force Majeure clause in the contract or if such clause is inadequate to address the devastating effects of COVID-19, then the affected contractor will have to seek relief otherwise.

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. Such legal concept will vary, however, from one jurisdiction to the next and evolve over time within the same jurisdiction. Another element to be taken into account is that most civil law jurisdictions apply a different regime to public contracts entered into with the state or a public agency and private contracts between private parties. Different rules apply to public and private contracts and disputes are resolved by administrative courts for public contracts and civil or commercial courts for private contracts.

This article will focus on assessing how the Pandemic may qualify as Force Majeure in France, and in Algeria. Invariably, unless the contract expressly states otherwise, 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. In brief, Force Majeure may entitle the contractor to time and exemption of liability but not to money. This is probably not the ideal outcome for contractors facing substantial additional charges as a result of the Pandemic.

There is however, another legal concept generally referred to as “Hardship”, which may provide to the contractor an alternative way to claim for compensation or to ask for a renegotiation of the onerous terms of a contract in order to avoid termination. This will be the case if the exceptional event resulted in unforeseeable difficulties that disrupt the economic balance of the contract.

1. Force Majeure and Hardship in France

1.1 Force Majeure in France

Historic background

The term “Force Majeure” (meaning “Superior Force”), originates from the French Civil Code (the “Napoleon Code”), which dates as far back as 1804. For a long time, the concept of Force Majeure was not defined in the Civil Code and only its effects were stated as follows in its former Article 1148:No damages shall be payable when the debtor has been prevented from performance or from doing that to which he was obliged as a result of Force Majeure”.

In the silence of the law, French Courts have formulated a test for the relevant event to qualify as a Force Majeureevent.

It had to be:

  1. 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: the event had to be beyond the control of the Parties and could not be prevented or avoided by adequate steps; and
  • External: the event did not have any connection with the Parties.

The third requirement was difficult to apply and led to uncertainty. It was set aside by the Cour de Cassation (the French Supreme Court) in 2006 – Cass. Ass. Plén. 14 April 2006 Ref. 02-11.1168.

French Courts have always had a restrictive view of the legal concept of Force Majeure and numerous decisions have held that exceptional negative events failed to qualify as Force Majeure, leaving the aggrieved contractor without relief on such basis.

New developments

Within the framework of a partial revision of the French Civil Code in 2016, the legal concept of Force Majeure was revisited and the provisions regarding Force Majeure were replaced as follows:

New Article 1218 C.c. reads:
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.

In the event of temporary prevention, the performance of the obligations shall be suspended unless the resulting delay justifies the termination of the contract. In case of permanent impossibility, the contract shall terminate as of right and the parties shall be relieved of their obligations …”.

This new article has maintained the double test of unforeseeability and irrestibility laid down by the courts. In terms of consequences, it distinguishes between suspension resulting in an extension of time and termination if the impossibility to perform is persistent or final. It remained silent on compensation.

Since it is a legal concept enshrined in the Civil Code, Force Majeure may be invoked even if the contract does not contain any Force Majeure provision. The aggrieved contractor will then rely on Article 1218 C.c. and the facts of the case to substantiate its claim for an extension of time or an early termination in the worst-case scenario. The success of such claim will depend on the Force Majeure event, its consequences on the performance of the contract and the relationships of the parties. If the claim is resisted by the owner, it will probably have to undertake the scrutiny of the courts and depend on the personal assessment by the judge of the contract. There is no rule of precedence in France and prior decisions are not binding upon the courts, although they may offer some perspective on the likely outcome of the claim.

French courts in their earlier decisions have been reluctant to admit that epidemics such as Ebola, Chinkungunya, SARS or the H1N1 flu could qualify as Force Majeure. This COVID 19 Pandemic is however unprecedented not only as a deadly global outbreak but also in consideration of the radical measures taken by governments in an attempt to control its spread.

French President Emmanuel Macron has declared that France was “at war” with COVID 19. On 21 March, the French Government. received exceptional powers from Parliament so as to take urgent measures by ordinances and decrees so as to address the current “Health Emergency”. Similar exceptional powers were obtained by the Government in 2015 in response to the wave of terrorist attacks perpetuated in France. Both war and terrorist attacks would no doubt qualify easily as Force Majeure events.

The Minister for Economic Affairs and Finance, Bruno Lemaire declared on 28 February 2020 that COVID 19 would be considered as Force Majeure for contractors of public contracts and liquidated damages for delay would not be applicable in case of delay in the performance of their obligations.

The legal authority of such declaration is uncertain since only the judge of the contract may decide whether Force Majeure has occurred in case the parties fail to agree thereon. Such declaration is likely to carry more weight for public contracts financed out of public funds than on private contracts where owners are struggling with the economic effects of the Pandemic. It will probably be invoked by most contractors, in order to support their claims and challenge the imposition of liquidated damages or possibly an alleged termination for default.

New Article 1218 C.c. fails to refer to any obligation to give notice. However, contractors desirous to invoke Force Majeure would be well advised to inform their owners in writing of their wish to invoke the relief of Force Majeure and to specify how and to what extent the Pandemic is preventing them from performing their obligations. An unjustified suspension is likely to be considered as abandonment of contract. Contractors should also keep auditable records to substantiate their claims since they will have the burden of proving their cases.

Since the above legal concept and the ruling of the courts leave room for uncertainty, construction contracts will often contain detailed Force Majeure provisions and procedures to be implemented in order to seek relief. In such a case, the contractor will have to comply with such provisions. If the Force Majeure clause fails to refer to epidemics or other events resulting from the Pandemic, the fall-back position of the Contractor will be new Article 1218 C.c.

Generally, Force Majeure provisions will enhance the laconic content of New Article 1218 C.c.. However, an unhelpful clause aiming at setting aside Article 1218 C.c. and preventing the contractor from exercising any recourse in case of Force Majeure will not be enforceable. The Code of Commerce prohibits the practice of imposing or attempting to impose on a commercial party, clauses that would create a significant imbalance regarding the respective rights and obligations of the parties.

The only limitation to the above developments is that New Article 1218 C.c. fails to qualify as a public policy concept. This means that it may not be relied upon if the contract is performed in France but is expressly governed by the law of another jurisdiction.

1.2       Hardship in France

Historic background

The legal concept of Hardship (“théorie de l’imprévision” in French) has existed for over a century and derives from the jurisprudence of the Conseil d’Etat (the administrative Supreme Court of France). This administrative law concept has applied only to public contracts and not to private contracts until the recent revision of the Civil Code.

Basically, Hardship may be invoked by the contractor of a public contract when 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. If the economic balance of the contract is likely to be disrupted by some 30% or more, the contractor is entitled to seek compensation therefor and/or to ask for a renegotiation of the onerous terms of the contract.

The rationale behind such administrative legal concept is to ensure the continuity of public service as a priority over and above the sanctity of contracts. The relief obtained by the contractor however does not extend to any exemption of liability regarding the affected obligations. It is early days to anticipate how administrative courts will qualify the Pandemic and understand its effects as Hardship, but the extensive case law of the Conseil d’Etat should be helpful to contractors of public contracts.

By contrast, civil and commercial courts have continued to enforce private contracts as formally agreed, irrespective of any intervening exceptional event that would practically lead the contractor to insolvency. To make matters worse for the unfortunate contractor, Force Majeure fails to cover economic duress.

Recent developments

The partial revision of the French Civil Code in 2016 saw the introduction of the concept of Hardship for private contracts.

New Article 1195 C.c. reads:
“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 therefor, 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. Alternatively, they may mutually agree to ask the judge of the contract to adjust it. If the parties fail to reach agreement within a reasonable period, either party may ask the judge of the contract to pronounce its termination at a date and with the effects to be determined by the judge”.

This new provision does not expressly provide for an extension of time and emphasizes the obligation to continue performance during the renegotiation period. However, it leaves the parties free to agree any new term and seems well suited to address the supply chain disruptions and other shortages resulting from the drastic measures taken by the French Government and other competent authorities as a response to the Pandemic.

The parties should always attempt to reach an amicable agreement, which ensures the continuity of their business relationships and call for the assistance of the judge if they fail to do so. Such assistance will however have to wait for better days since French Courts have been closed as from 16 March 2020 for an indefinite period.

Hardship clauses are quite rare, although they will be enforceable and prevail over Article 1195 C.c. This means that private contracts may validly set such article aside and exclude the concept of Hardship.

It is early days to assess the application of new Article 1195 C.c. and the Pandemic is a daunting challenge for such new legal development between private parties. It may however open a new path to contractors who would rather continue performance of their contracts at economically acceptable conditions rather than rely on Force Majeure and the limited relief of an extension of time or an early termination without compensation.

2. Force Majeure and Hardship in Algeria

2.1  Force Majeure in Algeria

The French Napoleon Code has influenced the civil codes of many civil law jurisdictions. It has had a great influence on Algerian law and the Civil Code of Algeria derives directly from it. Since independence, the Civil Code of Algeria, published in both French and Arabic versions of equal legal value, has evolved independently but often consistently with the French Civil Code.

In Algeria, the legal concept of Force Majeure may exempt a party from responsibility either in contract or in tort, if it is established that a damage or an impossibility was caused by a Force Majeure event or another external cause.

The relevant provisions are Article 127 and Article 138 of the Algerian Civil Code.

Article 127 C.c. reads:
Unless legal or contractual provisions provide otherwise, there will be no obligation to repair the damage for the one who proves that the damage resulted from a cause which is not attributable to him, such as force majeure, the fault of the victim or of a third party”.

It is important to note that Article 127 C.c. has been construed as allowing the parties to a contract to agree that no claim would be based on Force Majeure, placing fully the corresponding risks on the party who has accepted them. This is different from French Law where the risks of Force Majeure may not be displaced completely, leaving the affected party without recourse in this respect under Algerian law.

Article 138 C.c. reads:
Any person who is the guardian of a thing and who has the power to use, direct and control such thing is presumed to be responsible for any damage caused thereby. The guardian of the thing may be exonerated from responsibility if he provides evidence that the damage results from a cause which was not foreseeable, such as the act of the victim or of a third party, fortuitous case or force majeure”.

As for the former version of the French Civil Code, the Algerian Civil Code makes express reference to Force Majeure but fails to define the concept. Algerian Courts have followed the lead of French Courts and adopted the same set of tests for an event to qualify as Force Majeure. It must be:

  • Unforeseeable, and
  • Irresistible and
  • External.

The condition of irresistibility is strictly construed by Algerian courts. The contractor will have to demonstrate that the relevant event and its consequences could not be avoided by adequate measures that may include incurring additional expenses. In other words, the contractor is expected to mitigate the impact of the Force Majeure event to the best of his ability.

Such case law is however subject to specific legislation or to the Force Majeure provision of the contract.

For example, Law n° 05-07 of 28 April 2005 on hydrocarbons provides the following definition of Force Majeure:

Any proven event, unforeseeable, irresistible and external to the will of the party who invokes the event, which makes it impossible for such party, either temporarily or finally to perform one or more of its contractual obligations”.

In case of absolute impossibility, the construction contract will be terminated under Article 567 C.c. which reads:
The construction contract will terminate if performance of the work becomes impossible”.

As with French Law, Algerian Law will grant an exemption of liability, covering damages for delay and the right to suspend performance, to the contractor who rightly invokes Force Majeure but it will not provide for any compensation for losses and additional expenses.

Article 568 C.c. is harsh in this respect: it reads:
If the works perish as a result of a force majeure event before taking over by the owner, the contractor shall not be entitled to claim the price of the works or the reimbursement of his expenses. The loss of materials shall fall on the party who provided them”.

This article is unlikely to be triggered as a result of the Pandemic, but it serves to demonstrate that no claim for cost or economic duress will be entertained by owners regarding the impact of a Force Majeure event.

2.2 Hardship in Algeria

Contrary to French Law, the legal concept of hardship has been enshrined for a long time in the Algerian Civil Code.

Article 107 C.c. reads:
The contract has to be performed pursuant to its content and in good faith”.

It binds the contracting party not only to its content but also to all that the law, custom and equity consider as a necessary sequel thereof, in accordance with the nature of the obligation”.

However, if as a result of exceptional and unforeseeable events of a general character, the performance of the obligations, although not impossible becomes more onerous to the extent that the debtor is likely to suffer an exorbitant loss, the judge may, having assessed the relevant circumstances and the interests of the parties, reduce to a reasonable extent, the obligations which have become excessive. Any clause to the contrary will be considered as null and void.

The “exceptional and unforeseeable events” stated in the third paragraph of Article 107 C.c. may be similar to those to be invoked as Force Majeure events. Their effects are however different since they simply have to render performance of agreed obligations much more onerous but not impossible. Such events will threaten the contractor with exorbitant losses.

The third paragraph of Article 561 C.c., which apply specifically to engineering and construction contracts, reads:
When, as a result of exceptional events of a general character, which were not foreseeable at the time of the contract, the economic balance between the respective obligations of the owner and the contractor is disrupted so that the financial basis of the contract disappears, the judge may decide an increase of the contract price or the termination of the contract”.

Invoking Hardship will generally not lead to the termination of the contract but to its continuity and the mitigation of the economic duress, unless the judge decides otherwise. The parties should attempt in good faith, to reach agreement on less onerous terms for the contractor in order to restore the economic balance of the contract. There is nothing to stop the parties from agreeing an extension of time or a temporary suspension as part of the new measures, if they alleviate the prevailing onerous conditions.

Unlike French Law, Algerian law is subject to an overriding mandatory obligation for the parties to submit their dispute regarding hardship to the judge of the contract and any clause to the contrary will not be enforceable. Parties may still agree specific provisions in their contracts regarding Hardship, provided however that they remain consistent with Article 107 C.c. and any dispute as to their effects remains open to the scrutiny and final decision of the judge of the contract.

It remains to be seen if and to what extent the Pandemic will qualify as Force Majeure and/or Hardship with Algerian courts. The relevant provisions of the Algerian Civil Code may however provide some welcome opportunity for the submission of EoT claims and a chance to obtain compensation to aggrieved contractors.

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