*Note: An updated version of this alert was issued on April 22, 2020. Read more.
Unprecedented and temporary restraint on the binding force of contracts has just been enacted by the French Government. The health emergency and the measures implemented to maintain activity now directly impact the French principle of contractual freedom (“liberté contractuelle”). Among all four ordinances issued by the French Government in the context of the public health emergency, Ordinance No. 2020-306 of 25 March 2020 (the “Ordinance") relates to the extension of time limits during the public health emergency period not only extending procedural timeframes, but also suspending clauses sanctioning breach of contract and extending the duration of contracts. A “Super Force Majeure” has been created.
Article 4 of the Ordinance: temporary suspension of clauses sanctioning breach of contract until 24 July 2020 (to date)
All late payment penalties, penalty clauses, termination clauses and clauses providing for forfeiture are covered by the Ordinance, provided that:
i. the purpose of these clauses is to "sanction the breach of an obligation within a specified period of time";
In practice, this refers to clauses sanctioning the obligor in the event of a breach of an obligation to deliver a good, provide a service or pay off a loan within a specified period.
ii. the period available to the obligor to perform its obligations should expire between 12 March 2020 and "the expiry of a one-month period from the termination date of the health emergency";
To date, the health emergency is for a two-month period and will therefore end on 24 May 2020.
The effects of these clauses are frozen (they are "deemed not to have come into force or effect") until the expiry of a two-month period after the termination date of the health emergency and "if the obligor has not fulfilled its obligation before this term".