Ordinance 2020-306 of 25 March 2020, as amended and supplemented by Ordinance 2020-427 of 15 April 2020, revised certain rules applicable to contractual matters, in particular with regard to deadlines during the period of public health emergency. In particular, Article 4 provides for an adjustment of the time limits attached to periodic penalty payments (astreintes) and clauses establishing a penalty for non-performance. This article sets out certain penalties for delay in the performance of obligations, in particular those resulting from penalty clauses, termination clauses and forfeiture clauses, as well as periodic penalty payments.

This provision, which is technical, does not go without raising delicate questions of interpretation^[1] to which some initial answers are suggested in the reports to France's President of the Republic and the presentation circulars accompanying these two Ordinances.

One of the difficulties raised is the mandatory nature of Article 4 and, in particular, its international mandatory nature. On this subject, we have contradictory evidence (1.) which we can try to reconcile (2.).

1.    CONFLICTING EVIDENCE

The circular's point of view. The Circular presenting the provisions of Title I of Ordinance No. 2020-427 gives a straightforward answer to the question of the international peremptory nature of Article 4, since it states that "with regard to the territorial application of these provisions, it may be considered that the provisions of Article 4 are a mandatory rule (loi de police) within the meaning of Article 9 of Regulation No. 593/2008 of 17 June 2008 on the law applicable to contractual obligations, known as "Rome I""

While the circular quite appropriately includes "the sovereign discretion of the courts" as a reservation, it carefully justifies its position, considering that the classification as an overriding mandatory law (loi de police) "seems to be appropriate in view of the purpose of the mechanism [...] which aims to mitigate the economic consequences of the measures taken to fight the Covid-19 epidemic, for the broader purpose of safeguarding the economic organisation of the country".

What is the reach of such a statement? What analysis should be made of the international scope of Article 4?

International contracts subject to French law. The application of the new Article 4 to international contracts subject to French law does not pose any real difficulty, as long as they are provisions of French law which are normally applicable, whether or not they are an overriding mandatory law.

As for domestic contracts, the question relating to the temporal application of the provisions of the ordinance was asked and in particular whether they also applied to contracts concluded before 12 March 2020, those concluded before its date of entry into force, and those concluded subsequently. On this point, the new wording resulting from Ordinance 2020-427 sheds some light as it implies that the new provisions apply to contracts whose obligations arose during the legally protected period. It is also supported by the presentation circular, according to which "These provisions are applicable to contracts concluded before the entry into force of the ordinance [...]"; "They are also applicable to contracts concluded or renewed after the entry into force of the ordinance, as well as to amendments subsequent to this entry into force".

International contracts subject to foreign law. In the case of contracts governed by foreign law, the analysis is more complex and involves higher stakes.

In this case, the overriding mandatory laws’ method (méthode des lois de police) would allow these provisions to apply immediately to the situation, regardless of the law designated by the conflict of laws rule, i.e. in contractual matters, without regard to the possible choice of law of the parties. Thus, if Article 4 of the amended Ordinance 2020-306 is indeed to be regarded as an overriding mandatory rule, the time extensions would likely apply irrespective of the law applicable to the contract.

For this to happen, two conditions must be met: first, the rule must be qualified as an overriding mandatory law, and second, it must seek to apply to the situation, in particular with regard to its geographical location, in correlation with the objective it pursues. A distinction is thus made between a stage of identification of the mandatory law and a stage concerning its application.

Intention of the author of the rule. Generally speaking, the identification of an overriding mandatory law is a perilous exercise. It is rare that the qualification is the express intention of the author of the rule.

This is true of Article 4, which does not itself define its geographical scope. The indication of a possible classification as an overriding mandatory law comes from the implementing circular, which is known to have no normative value and which itself is merely a suggestion. The report to the President of the Republic is silent on this point.

Purpose of the rule. In the absence of any indication of the author of the rule, it is normally left to the courts to decide. They look for indications and, in particular, take into account the rule's purpose.

In this respect, the argument put forward in the circular is likely to influence the courts' reasoning. The context of the adoption of Article 4 in application of Law No. 2020-290 of 23 March 2020 "as an emergency measure to deal with the Covid-19 epidemic", as well as its purpose, which is in particular to "mitigate the economic consequences of the measures taken to combat the epidemic", could be an argument in favour of such a qualification.

The circular goes so far as to link these provisions to the overall objective of "safeguarding the economic organization of the country". In this respect, it includes Article 4 in a provision that fits the traditional definition of the overriding mandatory laws (lois de police) which results from Francescakis' famous formula concerning "laws whose observance is necessary for the safeguarding of the political, social or economic organisation of the country"^[2]. This doctrinal definition inspired Article 9 of the Rome I Regulation^[3], which provides that overriding mandatory rules are "provisions, the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation".

It remains to be seen whether the courts will consider, as the circular does, that the application of these provisions is indeed necessary to safeguard the French economic organisation or whether they will consider that this is a form of exaggeration.

Impact of the fact that the parties may depart from the rule. Irrespective of this question, the characterisation of Article 4 as a mandatory rule, the effect of which would be to replace the law chosen by the parties, is surprising in view of one of the characteristics of this article, namely the fact that the parties seem to be able to waive or set aside its application.

This possibility does not result directly from the Ordinance, but it is expressed in the report to the President of the Republic on Ordinance No. 2020-427, which states that "The parties to the contract remain free to waive the application of this article by express clauses, in particular if they decide to take into account differently the impact of the health crisis on the conditions of contractual performance. They may also decide to waive the provisions of this article".

It is reiterated in the circular, which, after having recalled that the provisions are applicable to ongoing contracts, specifies that "the parties remain however free to decide to waive the right to the protection ensured by this protective mechanism", by means of an "unequivocal expression of will". As for "contracts entered into or renewed after the entry into force of the Ordinance" and "amendments subsequent to the entry into force of the Ordinance", to which Article 4 is also applicable, the Circular offers the parties the freedom "to contractually exclude the application of these provisions".

The author of the circular carefully justifies this option: as long as at the time of the conclusion of the contract, the parties were aware of the public health situation and of the provisions adopted in response, they are "in a position to integrate them into the economy of the contract and to organise themselves contractually accordingly. They therefore remain free to contractually adjust the deadlines for performance and the consequences of any non-performance, whether or not attributable to the measures taken by the authorities to combat the Covid-19 epidemic".

The fact that the parties may thus derogate from the adjustment of deadlines laid down in Article 4, which demonstrates that they are suppletive rules, seems to preclude them from being sufficiently imperative to be qualified as overriding mandatory laws (lois de police). It is in fact common to consider that what is imperative at international level is necessarily imperative at domestic level. As with the distinction between domestic public policy and international public policy, the difference would be more one of degree than of nature: one speaks then of a "merely mandatory" rule for internal imperatives and of an "internationally mandatory" or "super-imperative" rule, with the idea of a hierarchy^[4]. The idea is quite logical for those who see in the mechanism of mandatory rules a manifestation of the role of the State, in particular with regard to contractual relations, and a limit to the will of the parties to evade this law by designating a foreign law. It is, moreover, commonly used.

Thus, instinctively, it is hard to imagine that the parties could rule out the application of an overriding mandatory law, since such a qualification implies that the rule has a "particular imperative nature"^[5] which enables it to be imposed in international contracts. The reference is moreover expressed in Article 9 of the Rome I Regulation, which precisely defines mandatory rules as "a mandatory provision the observance of which is considered crucial [...]".

In the light of the foregoing, it would be legitimate to doubt whether Article 4 is an overriding mandatory law, despite the circular's assertion. Such a doubt could benefit the application of the law chosen by the parties, since the mechanism of overriding mandatory laws is ultimately only an exception, a derogation from the conflict of laws rule^[6].

*  *  *

Does this mean that it is impossible for this rule to be qualified as an overriding mandatory law? On this point, there is oscillation between, on the one hand, the apparent antinomy between mandatory law and suppletive rule mechanisms and, on the other hand, the difficulty of ignoring the express assertion of the circular, coupled with a theoretical justification that is, moreover, intellectually admissible with regard to the purpose of the rule.

Clarification of these issues, either by the author of the rule or by case law, would be welcome. However, it is likely to take some time. In the meantime, therefore, caution is necessary.

2.    CONCILIATION ATTEMPT

Is it nevertheless possible to overcome the contradiction? For the sake of completeness, is it not necessary to seek a way of reconciling the two features of Article 4 as presented in the Circular?

We shall venture to consider two avenues of thought which, as things stand, can only be embryonic.

Domestically mandatory nature and internationally overriding mandatory laws (lois de police). The first, theoretical, approach would be based first of all on a subtle approach to the differences between concepts generally considered to be equivalent, in particular that of public policy and mandatory nature, but which it has sometimes been pointed out are not necessarily comparable^[7].

It would also be based on what distinguishes the mechanisms at work here. While both domestically mandatory rules and the interplay of overriding mandatory law (loi de police) are presented as mechanisms of removal, the norm being removed is not the same. In the case of so-called 'merely' mandatory rules, the rule being displaced is the contractual clause that intended to provide otherwise; in the case of overriding mandatory rules, it is in fact the conflict of laws rule that is short-circuited - and ultimately the foreign law normally applicable.

On the basis of these distinctions, the instinctive idea that an overriding mandatory law is necessarily a mandatory rule in domestic law could be revisited.

It is thus refuted by part of the doctrine, which considers that classification as a mandatory law should depend only on the objective it pursues^[8] and not on its characteristics, including its internal mandatory nature. It would be "conceivable for an overriding mandatory law to be suppletive, since this is the technique that the legislature considered to be the most appropriate for achieving the societal objective set in the particular context in which it was acting"^[9]. The hypothesis should remain rare, but the French Cour de Cassation has had occasion to give an illustration of this^[10].

The interpretation of Article 4 as suggested by the circular could thus take advantage of this difference in the purpose of the mandatory nature of "merely" mandatory rules and overriding mandatory law (loi de police).

Application limited to what is necessary to achieve the purpose of the rule. The second line of thought would be based on the purpose of the text. Its objective, recalled by the circular, is to mitigate the economic impact of measures to combat the epidemic, with a view to safeguarding the economy. However, what safeguards the economy here is not so much the blind and systematic application of the new deadlines to all contracts, but the fact that this possibility exists for those contractors who need it. That is, moreover, what justifies the possibility of renunciation and to stipulate otherwise. The parties, in full knowledge of the facts, can choose a different organisation and draw the contractual consequences. The general objective of safeguarding the French economy thus requires an individual protection mechanism^[11].

The text that aims to protect the economy by protecting contractors in difficult situations could be intended to apply only in cases where it is necessary for this individual protection. This would not be the case if the parties have organised themselves otherwise, fully aware of the facts. A simple choice of foreign law - moreover, before the beginning of the health crisis - should be insufficient to characterise a waiver of the protective device and in particular a waiver which, according to the circular, should "be the subject of an unequivocal expression of will".

This analysis could be the manifestation of the conditions for implementing an overriding mandatory law, the first of which we have seen was its identification within the category of overriding mandatory laws (lois de police) and the second, its "willingness" to apply to the situation concretely under consideration^[12]. This "willingness to apply" is based on the question of whether the use of the rule is legitimate and necessary, in a particular context, with regard to the higher purpose which precisely enabled it to be classified as an overriding mandatory law. Usually, when specified, this "willingness to apply" results from a geographical connection of the situation (for example, the rules applicable to subcontracting, qualified as mandatory rules, apply only where the subcontractor is established in France). Some authors also consider that an overriding mandatory law may be self-limited, i.e. that it refuses to apply outside certain limits, which it defines. In other words, the overriding mandatory law does not always need to apply "immediately", in the sense of "internationally", if the objective it pursues is not threatened. An overriding mandatory law that would make its application dependent on the absence of an alternative organisation of the parties to deal with the crisis would certainly be unprecedented, but it would respond to the very reason for its elevation to the rank of an overriding mandatory law (loi de police).

These justifications may be not be entirely convincing, given that the idea that what is mandatory at international level is necessarily mandatory at domestic level is so firmly established. So why bother trying to reconcile what seems irreconcilable? Firstly, because the concepts are subtly intertwined; secondly, because it would be imprudent to overlook the impact that the detailed suggestion of the Minister of Justice's circular may have on the judge; and lastly, because it is necessary to remember those cases where the necessary application of a rule was "arbitrarily imposed by the legislator"^[13].

*  *  *

In any event, the application of such overriding mandatory laws (lois de police), if they were to be considered in this way, would depend on the court seized: while they would be implemented almost automatically by a French judge, their implementation would be more uncertain before a foreign court or judge where they would be considered as foreign overriding mandatory rules (lois de police étrangères). Moreover, the possibility of a conflict will have to be taken into consideration in the event that foreign legislators adopt comparable provisions.

Lastly, it should be noted that the objective of protecting the economy could possibly reappear under the international public policy exception and give grounds for refusing to recognise foreign decisions or arbitral awards which would, in practice, run counter to the objective of protection thus aimed for by the Ordinance.

On this subject, doubt - and therefore caution - is thus called for.

______

[1] See the interesting analysis of O. Deshayes, "La prorogation des délais en période de Covid-19 : quels effets sur les contrats ? " D., 2020.831.
[2] Rep. Dalloz International, 1re éd., v° Conflit de lois, no. 137.
[3] Regulation No. 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome I).
[4] See the definition adopted by L. d'Avout., « Le sort des règles imperatives dans le règlement Rome I », D. 2008, p. 2165, specifically. No. 9: mandatory rules have "a higher degree of mandatory nature: they are domestic rules whose mandatory nature resists the authentic internationality of the contract".
[5] In this regard, D. Bureau and H. Muir Watt, Droit international privé, t. 1, 4th ed. 2017, no. 552.
[6] In this regard, D. Bureau and H. Muir Watt, Droit international privé, t. 1, 4th ed. 2017, no. 552.
[7] A distinction is sometimes made between the concept of public policy and the mandatory nature of a norm, as opposed to its suppletive nature, the former being presented by some as striving for the protection of the general interest and the latter being likely to include, in addition, the protection of individual interests.
[8] In this sense, A. Jeauneau, L'ordre public en droit national et en droit de l'Union européenne. Essai de systématisation, LGDJ, 2018, spec. no. 188 et seq.; B. Rémy, Exception d'ordre public et mécanisme des lois de police en droit international privé, Dalloz, 2008, No. 509-511: "It is [...] quite possible that a societal objective may be achieved in different ways, so that the State prefers to leave the choice to individuals to agree on the means to achieve this objective. The contract then becomes an "instrument of political regulation" and the state moves from a welfare, social and propulsive state to a strategic, reflexive and negotiating state. This is the case in particular with regard to certain preferential attributions whose societal objective is the preservation of the French economic fabric and which can be set aside by unequivocal manifestations of will". See also Dennis Solomon, "The Private International Law of Contracts in Europe: Advances and Retreats", Tul. L. Rev. 2008, pp. 1709-1740, spec. pp. 1736-1737, which distinguishes between limiting the autonomy of the parties' will, which would not be at work in the mechanism of mandatory rules, and "doing justice to considerations of legislative policy not adequately taken into account by means of the conflict rule in contractual matters", which would be the opposite of the essence of mandatory rules (our translation).
[9] A. Jeauneau, L'ordre public en droit national et en droit de l'Union européenne. Essai de systématisation, LGDJ, 2018, spec. no. 189.
[10] Please refer to Cass. civ. 1re, 10 October 2012, no. 11-18.345: the rules relating to preferential attribution in matters of succession are qualified there as overriding laws, "by reason of their economic and social purpose", even though at the same time, in domestic law, it is accepted that these rules "do not have a public policy character" (F. Terré, Y. Lequette and S. Gaudemet, Droit civil, Les successions, Les libéralités, spec. no. 1113, p. 988). In this regard, see the developments of D. Bureau, in "Juger le présent, prévoir l'avenir", Droit et Patrimoine, No. 236, 1 May 2014, pp. 78-84.
[11] The circular also refers to a protective device.
[12] Article 9 of the Rome I Regulation expressly refers to this condition when it defines the police law as " provisions the respect for which is regarded as crucial by a country [...] to the extent that they are applicable to any situation falling within their scope" (emphasis added). 
[13] P. Mayer, V. Heuzé and B. Rémy, Droit international privé, 12nd ed., 2019, no. 123.

Claire Debourg is a member of Gide's Scientific Council, alongside experts, partners, senior counsels and academics who work closely with the firm. A consultant and University Professor in law, Claire Debourg specialises in international arbitration and dispute resolution.

This legal update is intended for non-exhaustive general information. It is not intended to be and should not be construed as providing legal advice from Gide.

>> Click here to find out more about Gide's multidisciplinary taskforce set up to answer all your legal issues relating to Covid-19.