On 20 May 2020, following summary proceedings regarding a dispute over an energy supply agreement between EDF and TDE, the president of the Paris Commercial Court ordered the performance of the contract be suspended in accordance with the force majeure clause drafted by the parties, due to the financial consequences of the COVID-19 crisis.
In a potential first, the court has issued a clear ruling that the COVID-19 crisis and its financial consequences can, under certain circumstances, be considered to constitute a force majeure event under a commercial contract between private parties.
Although the context of the dispute, relating specifically to the regulation of the French energy market, is important, the impact of this decision is by no means limited to this sector alone, and warrants attention.
The case: a first in commercial matters
On 20 May 2020, following summary proceedings before the Paris Commercial Court regarding a contractual dispute between Électricité de France (EDF) and Total Direct Energie (TDE), the president of the court ordered EDF to suspend contractual performance in accordance with the force majeure clause drafted by the parties.
This decision on a contractual dispute between private parties may well be the very first where the French courts have stated that the COVID-19 crisis is a force majeure event, and so has understandably caught the eye of the legal community.
Although the context of the dispute, relating specifically to the regulation of the French energy market, is important, the impact of this decision is by no means limited to this sector alone.
The context: the domino effect of COVID-19 and the fall in electricity market prices
In France, the vast majority of the country’s electricity is produced by EDF-owned nuclear power plants. In order to grant competitors with effective access to the French energy market, a law regulating the market requires EDF to sell 100 TWh annually at a set price of €42 per MWh1. It is by virtue of this law that alternative energy suppliers such as TDE may enter into specific energy supply agreements with EDF. Such agreements are based on the ARENH2 Model Agreement (“ARENH Agreement “) drafted by the Energy Regulation Commission3.
The dispute in question arose out of one such supply agreement, concluded between EDF and TDE on 4 May 2016.
Typically, and under normal conditions, the regulated price is very attractive. However, the COVID-19 crisis created an inevitable domino effect on demand for electricity, which in turn resulted in a significant price drop. As such, alternative energy suppliers had no choice but to sell electricity at half the regulated price. It is in this context that TDE notified EDF of its desire to suspend the order of electricity in accordance with the force majeure clause contained within the agreement. EDF rejected this request and a dispute arose regarding the interpretation of the force majeure clause and its applicability to the circumstances.
Technically speaking, contract performance between the parties was still possible: EDF was still providing electricity and under French law, financial troubles are not usually an admissible ground for force majeure. From EDF’s point of view, allowing alternative electricity suppliers to avoid their payment obligations under ARENH agreements would be unjust, as EDF would have to support the financial risk alone.4
As the interpretation of the agreement was subject to the jurisdiction of the Paris Commercial Court, TDE initiated summary proceedings before the court and requested that the president of the court apply the necessary measures to give effect to the force majeure clause. Due to the ongoing health crisis, the hearing took place in May by way of videoconference.