Performing Contracts in COVID-19 Times in England and in France: Different Responses, Same Result?, by Catherine Pedamon and Radosveta Vassileva

Global leaders have compared the economic turmoil caused by the COVID-19 health emergency to the reverberations of World War II (WWII). French President Emmanuel Macron even publicly declared, from the onset of the pandemic, that France was ‘at war’. Unsurprisingly, governments introduced various measures to limit the effects of the pandemic and to provide a helping hand to the economy. Surely, contract law is seldom a topic of public concern, but in the given circumstances, one should bear in mind that COVID-19 may have palpable effects on the performance of contracts. Namely, the performance of obligations may turn out difficult, impossible, or even illegal due to the COVID-19 emergency itself and/or the measures imposed by governments, such as prohibitions for gatherings, the closure of businesses for prolonged periods of time (restaurants, entertainment venues, etc.), the closing of borders, the imposition of curfews and restrictions on movement, etc.

For comparatists, it is certainly interesting that contract law is one of the areas in which national responses towards the COVID-19 public health emergency seem very different. Some countries like France have put forward specific rules dealing with some economic and social impacts arising from the pandemic. Macron’s government issued 27 ordonnances, the most notable being ordonnance n° 2020-306 of 25 March 2020, which regulates certain aspects of contract performance. By contrast, other countries like the UK have avoided intervening in commercial contracts. In parallel, national laws diverge regarding the consequences which supervening events such as the COVID-19 pandemic may have on contract.

In an article which will be published in the European Review of Private Law (2021, Volume 29, Issue 1), we compare the likely effects of the COVID-19 emergency on the performance of contracts in England and France. Comparing these two jurisdictions is interesting due to the persistent and long-standing differences between them. The goals of our comparative inquiry are:

• to demonstrate that legal cultural differences, which are historically rooted, persevere even at the time of a global crisis which seems to have affected these jurisdictions in similar ways, if the number of COVID-19 cases is any indication;
• to examine if these countries have sought inspiration in their own legal history in looking for solutions, which balance freedom of contract and fairness; and
• to evaluate if either jurisdiction has a better-suited toolbox to respond to the difficulties posed by COVID-19 to the performance of contracts.

Legislative Intervention in a Historical Perspective

A brief historical inquiry into the responses by France and England to the repercussions of WWI and WWII showcases that the two jurisdictions have a different level of tolerance towards state intervention in contract law. France favours legislative intervention through special statutes for the sake of fairness whereas England usually leaves the difficult choices at the discretion of the courts that can either reason in equity or apply/develop existing common law doctrines. In the cases in which the UK legislator has intervened, one also observes a narrower scope and a commitment to leaving a larger margin for discretion to courts compared to the French legislator.

The Loi Failliot (loi of 21 January 1918) provides one of the classic examples of 20^th century intervention in French contract law. Its Article 2 is certainly interesting from a common law perspective for it provided for the termination of commercial contracts entered before the start of WWI upon the request of either party ‘if it [was] established that due to the state of war, the performance of obligations of one of the contracting parties [would] involve costs or cause[d] it loss whose importance significantly surpasse[d] the forecasts which could have reasonably been made at the time of contracting (translation our own)’. Diverse laws, similar in spirit, were enacted post-WWI and in the aftermath of WWII, too. One of them, the loi of 22 April 1949, bears a striking similarity to the Loi Failliot albeit with a wider reach and a narrower time frame. Having this background in mind, one can better understand that the intervention by Macron’s government through ordonnances has a historical underpinning. If one can identify a novelty, it lies in the fact that the French government intervened at the outset of the emergency while historically it has intervened when the disastrous impact of crises on contractual performance was evident. The new ordonnances, however, appear patchy and with limited scopes, which seems to leave contracting parties to their own fates and subject them to the ultimate discretion of the judge applying the ordonnances, despite the will of the government to provide quick-fix solutions.

Compared to the French legislator, the UK legislator rarely intervenes in contract law. Emergency legislation touching upon contract has been enacted in the aftermath of WWI and WWII, but its scope is narrower than French legislation from the same period. The Courts (Emergency Powers) Act, 1914 allowed courts to defer the execution of judgments and orders for the payment or recovery of a sum of money because of difficulties attributable to war for a time and under conditions the courts saw ‘fit’. The Courts (Emergency Powers) Act, 1917 allowed courts to suspend or annul building contracts, which could not be performed ‘without serious hardship’ because of delay in the supply of materials or shortages of labour. It also empowered courts to suspend or annul contracts whose terms could not be performed ‘without serious hardship’ due to government restrictions imposed in ‘defence of the realm’. Case law shows that courts interpreted these powers narrowly. The Courts (Emergency Powers) Act, 1939 reflected the spirit of WWI special legislation although it had no provisions bestowing the far-reaching powers typical of the 1917 Act upon courts. From this standpoint, one can see that the choice of the UK government to take limited action vis-à-vis the difficulties of performance caused by COVID-19 at this stage also seems to reflect a historical tradition of intervening as a last resort and in a restrictive manner.

In this light, possibly because of the limited legislative intervention in the area of contract law, historically, English courts have felt compelled to respond to cases pertaining to performance issues caused by war by either reasoning in equity or developing existing common law doctrines. The promissory estoppel, as established in Central London Property Trust Ltd v High Trees House Ltd ([1947] KB 130), is a classic example to this end. It is also noteworthy that the doctrine of frustration also evolved in response to diverse challenges posed by the war context — shortages of labour and material, government restrictions, etc. Of course, WWI and WWII showcased English judges’ reluctance to overstretch the doctrine, too. This is visible in Blackburn Bobbin v TW Allen ([1918] 1 KB 540, 551) where an ‘unforeseen event’ which has rendered performance ‘practically impossible’ was not recognized as a frustrating event. This is also discernible in the leading case on frustration Davis Contractors Ltd v Fareham UDC ([1956] AC 696) which put forward the current ‘radically different’ circumstances test that is extremely difficult to satisfy.

Two Different Contractual Toolboxes

In this context, parties in both jurisdictions may also rely on the existing contractual doctrines and, surely, the French toolbox seems much more extensive at first glance. However, appearances may be deceiving for older doctrines come with historical baggage and newer options introduced via ordonnance n° 2016-131 of 10 February 2016, which implemented a major reform of the French law of contract, may give rise to uncertainty in their application.

In France, in the absence of explicit force majeure or hardship clauses or where these clauses are simply ambiguous, parties may rely on statutory provisions concerning the effects of supervening events on performance. Force majeure, one of the signature doctrines of French law currently defined in Article 1218 of the Code civil, as well as the newly introduced doctrine of hardship (imprévision) in Article 1195 seem to be go-to options for struggling parties. Nevertheless, our research into scholarly writing and case law shows that the criteria of application of these doctrines are very difficult to satisfy, which makes them ill-suited to the challenges of contractual performance in COVID-19 times.

The 2016 reform also introduced a series of unilateral prerogatives, which allow an aggrieved party to deal with the consequences of contractual non-performance without involving the court. One such remedy is the ability to unilaterally terminate a contract by notice where the non-performance is sufficiently serious (Article 1226 of the Code civil). The old-fashioned and much discussed principle of ‘good faith’ remains a tool in the hands of the judge to keep in check the excessive exercise of these unilateral prerogatives and redress contractual injustices. This means that the application of these prerogatives may not go smoothly.

In England, as a response to the narrow scope of the doctrine of frustration and in line with the principle of freedom of contract, parties often include detailed clauses covering supervening events in which they define the consequences of their occurrence. This is widely reflected in commercial practice. Parties are also free to attempt to renegotiate their contract. Even if consideration is required for a contract modification, in challenging times, judges have resorted to the equitable doctrine of promissory estoppel to circumvent this requirement (High Trees, cited above). There is also room for judicial manoeuvres in how consideration is defined (Williams v Roffey Bros, [1991] 1 QB 1).

An analysis of case law shows that frustration, despite its development in the last century, does not appear well-placed to resolve difficulties of performance because of its extremely narrow scope, its messiness, and its draconian effects — automatic termination at the moment it occurs. As a result, parties are usually left to their own fate when confronted with supervening events.

The Way Forward?

We have reached the conclusion that both France and England have stayed true to their historic responses vis-à-vis the effects of trying times on contracts. However, we have also demonstrated that neither France nor England has an ideal solution to the challenges posed by COVID-19 for contractual performance. Messy and limited state intervention or narrowly construed doctrines may not address the needs of contracting parties.

At the end of the day, it seems that in both jurisdictions, parties are better off attempting to design their own responses to difficulties of performance resulting from the COVID-19 pandemic and to reach out to the courts only as a last resort. Finding a satisfactory solution for both parties may require a degree of collaboration and solidarity, which is not necessarily typical of either jurisdiction (solidarity is an ideal popular in French scholarly writing, but not fashionable in court). Hence, it is interesting to see if there will be an evolution of the values of the business community in both jurisdictions as a result of the pandemic.

Posted by Catherine Pédamon (University of Westminster) and Radosveta Vassileva (UCL)

Picture credit: NIAID for Wikimedia Commons 

(Suggested citation: C. Pedamon and R. Vassileva, “Performing Contracts in COVID-19 Times in England and in France: Different Responses, Same Result?”, British association of comparative law blog, available at performing-contracts-in-covid-19-times-in-england-and-in-france-different-responses-same-result-by-catherine-pedamon-and-radosveta-vassileva)