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The Covid-19’s Effect on Creditors and Debtors: A force majeure


The Covid-19’s Effect on Creditors and Debtors: A force majeure

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This brief analysis displays how the coronavirus and the governmental decision of general mobilization – a combination between a natural event and a legal obstruction – created an urgent event that is characterized as a force majeure. In light of this finding, we discuss, from one side, how debtors, whom are unable to perform their obligations, should be acquitted from performance. And from another side, how prescription is suspended in favor of the creditor who is unable to claim his right and risk lapse of the period of prescription.

 

Introduction

The Coronavirus disease (COVID-19) or Pandemic, as referred to by the World Health Organization[1] (WHO), created a true case of chaos in the world. Shutdowns and state of emergencies halted society’s modus operandi.

The Lebanese government proclaimed in decision number 1 on March 15 a state of general mobilization[2] until March 29, following a “health emergency” which ordered the closure of frontiers and most businesses in accordance with article 2 of the National Defense Law. The general mobilization was renewed twice[3] until April 26, 2020, leaving most businesses paralyzed, and parties to contracts unable to perform and deliver on their contractual and legal obligations.

The Lebanese code of obligations and contracts comprised provisions covering the “impossibility of execution” of obligations when “proving the case of force majeure”, and “suspension of prescription” for the benefit of the creditor whom was unable to interrupt it.

Could these provisions rule the non-performance of obligations or the prescription of rights with regards to the coronavirus pandemic and in light of the general mobilization?

Part 1 – Characterizing the Coronavirus event as Force Majeure

The Lebanese code of obligations and contracts (COC) mentions force majeure in different articles such as 129, 131, 342, 343, 484 Etc. However, the legislature did not define what a force majeure is or what its conditions are, hence it was determined by jurisprudence and doctrine as we will present afterwards.[4]

Mainly the urgent event should satisfy three conditions to be characterized as force majeure, it should be unforeseeable, unavoidable, and not caused by the fault of the debtor.[5] Additionally, it is considered general law applied on all cases without being explicitly agreed upon and parties cannot agree to avoid it[6].  

 

  1. Conditions

Unforeseeable: it is an urgent event that was not foreseeable when contracting and could not be expected by both parties. Moreover, it still occurred even if all precautionary measures are taken. Additionally, courts consider if it could not have been foreseen by another person given the same circumstance.

In accordance with the aforesaid, parties to an agreement – made after knowing about the pandemic – cannot consider it as unforeseeable, the same was decided by the Saint-Denis appeal court of Paris that did not apply force majeure to the case at hand because the pandemic of Chikungunya existed before contracting.[7]

Unavoidable: the urgent event could not be resisted or avoided. The courts examine the happening of this condition in an objective manner whilst taking into consideration the specific capabilities of the debtor. It is important to note that some courts apply force majeure, in a rigorous manner, even if the event could have been foreseen when contracting but in anyway could not be avoided.[8]

External character: as a general principle, no one can benefit from his own error. As such, the urgent event should be an external factor not caused by the debtor, and can, in some cases, be caused by a third person.[9]

L’Assemblée plénière of the cassation court in France ruled in 2006 that the force majeure is unforeseeable when concluding the contract, and irresistible when performing it.[10]

  1. Can the case of coronavirus in Lebanon be considered as force majeure?

The Lebanese government considered that the covid-19 imposed a “health emergency” on the country and decided on a general mobilization on March 15, the decision included a stay at home policy for all citizens with a curfew between 7pm and 5am, the shutdown of courthouses (excluding the detained persons and urgent cases), banks (with some exclusion), notaries, official departments, schools, universities, municipalities, and businesses in general, excluding pharmacies, supermarkets and restaurants (excluding delivery service). It also resulted in the closure of frontiers, the airport, and seaports. Equally, ministries such as the ministry of justice and finance issued decrees to cope with this decision.

Therefore, most obligations or rights cannot be executed nor claimed due to either the decree or the natural event of the coronavirus.

In a recent decision, the court of appeal of Colmar, in France, confirmed the covid-19 as force majeure, when a detained person could not appear to his hearing due to exceptional circumstances that were external, unforeseeable, and unavoidable imposed by the coronavirus on the center’s personnel where he was detained.[11]

In contrast, not all pandemics were considered ipso facto as force majeure to all cases. The Paris court of appeal did not find that the Ebola outbreak sufficed solely to produce a decrease in the company’s treasury, and hence it did not serve as a valid cause to allow tardiness of paying social contributions.[12]

In conclusion, it is clear that the current circumstances that were created by a combination between the natural event of the covid-19 and the general mobilization decision amount to force majeure, since the virus threat did not exist before, hence it could not be in anyway foreseen, and the government’s decision of closure is obligatory and cannot be avoided, moreover the case of coronavirus and the general mobilization decision is certainly an external factor that is now imposed on everyone. It is important to note that the Lebanese court of cassation can review if the lower courts have legally qualified the conditions of the force majeure on the case at hand.[13]

After validating the coronavirus pandemic as a force majeure, how does the law protect debtors from the current impossibility of performing their duties (Part 2), and how creditors safeguard their rights that risk lapse of the period of prescription (Part 3)?

Part 2 – Impossibility of Executing Obligations due to Force Majeure

In this Part we will discuss the consequences and the specificity of the proved case of force majeure on obligations. It is mentioned in article 341 and subsequent articles, the impossibility of execution of obligations, resulting from either a natural or legal cause.

  1.  The natural cause

The natural cause is produced by an urgent event characterized by the Force Majeure. The burden of proof is upon the debtor to verify the existence of the abovementioned conditions in his case. Here, we must differentiate between the force majeure that causes impossibility of performance and the difficulties and burdens that occur during execution that were not foreseeable when contracting. The second case does not constitute a force majeure.[14]

Nonetheless, according to art. 252 and 342 COC the creditor can prove the error or the late performance of the debtor that caused this impossibility, hence the obligation will stand and the creditor can request indirect execution (pecuniary indemnification) rather than the specific duties.

When a court finds that the natural cause can be pronounced as force majeure, it acquits the debtor from any liability, as his obligation is impossible to perform and the contract will be rescinded according to article 341 COC.

 

  1. The legal cause

The legal cause arises in case of new legislation, decree, or order making the obligation illegal or unobtainable and the debtor acquitted from performance without any liability.

Two conditions must be proved by the debtor, a) the legal impediment, such as a new law or decree occurred before any performance of obligations. b) The belated performance prior to issuing said impediment was not the error of the debtor.

In our case, the event of force majeure that is currently present, is a combination of the natural and legal cause as stated in article 341 COC. As a result, obligations to contracts are impossible to perform within the limits of the general mobilization decision, and the debtor will not be liable for not performing nor he can be subject to indemnification claim. Consequently, if the creditor has already claimed indemnification related to the unperformed obligation now dissolved, he must waive this claim, and in contrast, the debtor must give the creditor his tangible rights back.

We should keep in mind the good faith bona fide in executing agreements and the damages that could result in abuse of rights.

Additionally, there are certain limitations to be considered in all cases, as we present in the following paragraph.

  1. Limitations

As mentioned in Part 1, force majeure is stated under different articles throughout the Code of Obligations and Contracts[15], meaning, the legislature intended to set limits and/or specificity on how this theory can be implemented on various types of rights and obligations, such as:

  1. The force majeure can be circumstantial and may disappear with time, hence the debtor will not be acquitted from performing his obligations.[16]
  2. The force majeure may affect secondary non-substantial obligations in the contract, thus the contract will not be rescinded.
  3. Moreover, the judge may grant the debtor of good faith additional delays to perform his duties, art. 241 and 300 COC. And if the obligation is time limited, the judge may also grant extra delay and halt lawsuit’s procedure according to art.115 COC.
  4. Every case depends on the nature of obligations at hand, some can be divisible or not, and some are continuous in time, other are of multiple subjects, or successive, etc. for example and according to article 74 COC, all creditors benefit from suspension of prescription in case of indivisible obligations.
  5. Force majeure only acquit the obligations that it affected according to art. 343 COC.

After reviewing the matter at hand from the debtor’s perspective, creditors’ rights are also at risk as we will discuss consequently.

 

Part 3 – Suspension of Prescription Due to Urgent Event

In general, negligence in performing legal obligations raises the creditor’s right to claim indemnification or enforce the debtor to execute his duties. If the latter does not claim his rights before prescription he risks losing it according to art. 344 COC.[17]

The discussed scenario herewith may be, but not only related to the impossibility of performance as a result of the current circumstances. Negligence in executing duties may be independent or prior to the urgent case. Nonetheless, the creditor still needs to protect his rights whilst the force majeure is forbidding him from acting.

At large, the law presents multiple ways for creditors to interrupt or suspend prescription. However, the theory we will discuss herewith, is related to the existence of the current case of force majeure.

In particular, prescription is suspended for the benefit of the creditor who was not able to interrupt it for an involuntary reason, stated in article 356 COC, reflecting the Latin principle, Contra non valentem agere non currit praescriptio. Which translates to: prescription does not run against a person not capable to act for himself.

 

The Lebanese courts set two conditions to apply this article:

 

  1. Conditions

Firstly, the creditor could not avoid the urgent event that prevented him from claiming his right against his will and without his fault or delay[18]. Secondly, the event created a total impossibility for the creditor to claim and not only a mere difficulty. [19] It may also be described as a force majeure.[20]

 

  1. Consequences

If the court rules to suspend prescription, delays will be paused until the urgent event’s dissolution to continue afterwards. Prescription does not restart.

With regards to the general mobilization decision and the decrees issued by the Minister of Justice, all court hearings and notifications in lawsuits are suspended (excluding the discharge from prison of the detained and filing new claims of urgent cases). Additionally, the closing of notaries’ offices prevented persons and entities from sending notarized letters, or notarizing promissory notes and contract sales to safeguard their rights. Furthermore, corporate banking transactions are open to medical and nutrimental businesses, whilst other businesses have limited access. The Minister of Finance is negotiating this matter with the Lebanese banks association on a regular basis.

These circumstances prevented the creditor from claiming his rights against his will, for an external reason that he cannot challenge, amounting to a total impossibility to claim the right. Therefore prescription is suspended due to the force majeure at hand and until its dissolution.

 

Closing words

Due to the huge impact of urgent circumstances on rights and since courts discretion plays a role in determining the suspension of prescription or not, the legislature traditionally issues laws suspending prescription and governing such time, such as law n50 date 23/5/1991, and law of 8/12/2006 that were passed after wars. Consequently, the Lebanese government approved on the 17th of March 2020 a draft law[21] to suspend delays between October 18, 2019 and June 30, 2020. The parliament approved[22] an unknown version of this draft law on the 22nd of April, 2020 (version to be fully known upon its publication in the official gazette).

In conclusion, without any doubt the covid-19 pandemic paralyzed our society in different aspects. However, its full effect is yet to be discovered, as it will depend on how long it will persist and what measures will be taken to overcome it.

 


[4] مصطفى العوجي، القانون المدني الموجبات المدنية، منشورات الحلبي الحقوقية، ص 403

[5] مصطفى العوجي، القانون المدني، الجزء الثاني المسؤولية المدنية، مؤسسة بحسون، 1996 ، ص 110

[6] عاطف النقيب، النظرية العامة للمسؤولية الناشئة عن فعل الاشياء، المنشورات الحقوقية صادر، 1999، ص 323

[7] Saint-Denis de la Réunion, 29 déc. 2009, n° 08/02114

[8] مصطفى العوجي، القانون المدني، الجزء الثاني المسؤولية المدنية، مؤسسة بحسون، 1996 ، ص 112

[9] مصطفى العوجي، القانون المدني الموجبات المدنية، منشورات الحلبي الحقوقية، ص 406

[10] Cass. Ass. Plén., 14 avril 2006, bull. civ. n°5

[11] Cour d'appel, Colmar, 6e chambre, 12 Mars 2020 – n° 20/01098

[12] Paris, pôle 06, ch. 12, 17 mars 2016, n° 15/04263

[13] خليل جريج، النظرية العامة للموجبات، ج 1، 1998، المنشورات الحقوقية صادر، ص432، وأيضاً،

عاطف النقيب، النظرية العامة للمسؤولية الناشئة عن فعل الاشياء، المنشورات الحقوقية صادر 1999، ص323   

[14] مصطفى العوجي، القانون المدني الموجبات المدنية، منشورات الحلبي الحقوقية، ص 403

[15] Articles that mentions explicitly or implicitly the application of Force Majeure throughout the Code of Obligations and Contracts: 129, 131, 234, 342, 343, 434, 455, 456, 484, 492, 548, 566, 611, 621, 639, 671, 672, 688, 748, 794, 861, 966 COC.

[16] المرجع نفسه، ص 407

[17] المادة 344 موجبات وعقود:" تسقط الموجبات بتقاعس الدائن الذي يتخلف عن التذرع بحقوقه سحابة مدة من الزمان"

[18] قرار نهائي، غرفة أولى، مجموعة باز 1960 ، رقم 67

[19] زهدي يكن، شرح قانون الموجبات والعقود، دار الثقافة، الجزء السادس، ص 379

[20] محكمة التمييز، قرار تاريخ 30/9/1953، المحامي 1953، ص 229

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