The effects of the health situation linked to Covid-19 are akin to make difficult the respect of contractual conditions stipulated at the time of the conclusion of the contract and it may be interesting for the parties to ask for the renegotiation or the termination of the contract on the ground of frustration of purpose. Frustration of purpose refers to the situation in which, further to an unforeseeable change of circumstances, a contract becomes so unbalances that its performance becomes excessively expensive.

Frustration of purpose has been codified in French law by Ordonnance n°2016-131, applicable from 1^stOctober 2016. Concerning contracts concluded from 1^st October 2016 onwards, Article 1195 of the French Civil Code states that « If a change of circumstances that was unforeseeable at the time of the conclusion of the contract renders performance excessively onerous for a party who had not accepted the risk of such a change, that party may ask the other contracting party to renegotiate the contract. The first party must continue to perform his obligations during renegotiation. […] ».

To use frustration of purpose, the change of circumstances must be unforeseeable at the time of the conclusion of the contract and of such intensity that the performance of its obligation becomes economically difficult for the debtor.  It should be pointed out at this stage that frustration of purpose cannot apply to securities trade and to financial contracts (Article L. 211-40-1 of the French Monetary and Financial Code). 

Regarding the regime of frustration of purpose, Article 1195 paragraph 2 of the French Civil Code states that « In the case of refusal or the failure of renegotiations, the parties may agree to terminate the contract from the date and on the conditions which they determine, or by a common agreement ask the court to set about its adaptation. In the absence of an agreement within a reasonable time, the court may, on the request of a party, revise the contract or put an end to it, from a date and subject to such conditions as it shall determine ».

First, it belongs to the parties to renegotiate the terms of contract or to terminate the contract in case of refusal or failure of the renegotiation. During this period, the parties must continue to perform their obligations. The judge can only intervene to adapt or terminate the contract in case of a persistent disagreement between the parties and on the request of one of them. In principle the judge has the power to appreciate whether he must adapt or terminate the contract.  

However, frustration of purpose as set by Article 1195 of the French Civil Code is just a default rule and the parties may arrange in ad hoc clauses the definition and the regime of frustration of purpose, or even exclude its application. It should be verified whether such a clause is included in the contract and eventually under which conditions prior to using the means of frustration of purpose. 

Regarding contracts concluded before the entry into force of the Ordonnance n°2016-131, namely contracts concluded before 1^st October 2016, clauses of frustration of purpose are necessary to claim the renegotiation, the adaptation, or the termination of contract on this ground. In the absence of such a clause, the parties will not be able to claim frustration of purpose on the ground of Article 1195 of the French Civil Code.