Article 1148 of the Luxembourg Civil code provides that: "Damages are not due when, because of An FM or a fortuitous event, the obligor-debtor either was prevented from giving or doing what he was obligated to give or did what he was forbidden to do." According to case law and legal authors, FM is an unforeseeable event that prevents a contracting party from fulfilling its obligations.

FM is deemed to arise when a contracting party's performance is prevented by an event beyond its control, the effects of which could not have been foreseen at the time the contract was entered into and avoided by appropriate measures. In the event a debtor of a contractual obligation is unable to perform the obligation due to an FM event, he will be exempt from the performance of this obligation.

These rules apply by default to agreements governed by Luxembourg law and can be supplemented and/or derogated from by specific FM and/or material adverse change clauses. Such clauses are even required if the agreement is governed by foreign law, which does not always contain default rules on FM events.

It is therefore very important to refer first to the clauses of the contract.

There is no particular formality provided for by law, unless expressly provided for specific formalities in the contract.

It is, however, recommended to notify in writing the other party of the reason for which the performance of an obligation will be suspended or that the obligation shall not be capable of being performed at all.

There is no express legal duty for a party to mitigate its loss. This being said, the principle of good faith could be invoked. In fact, good faith in the negotiation, conclusion and performance of contracts (as well as in their termination) is a fundamental principle of Luxembourg contract law. Parties should consider framing the principle in the contract.

The debtor of the obligation that cannot be performed following a FM event will be exempt from the performance of its obligation. This does not have an impact on the performance of the obligations due up to the date on which the specific FM event occurred.

Luxembourg case law has recognized that where the obligations are reciprocal ones, the occurrence of FM will result in the application of the "risk theory" (théorie du risque). The applicable principle is in fact the same as for unilateral obligations; the obligor will be exempted from the performance of his obligation. Luxembourg courts have considered that in contracts with mutual obligations, FM does not only prevent one of the contractors to perform his obligations, but also the other contracting party, given that the extinction of one obligation due to FM leads to the extinction of the other one and, consequently, may lead to the “dissolution or termination” as of right of the contract.

Luxembourg law does not include the concept of frustration. However, contracts with mutual obligations may lead to the dissolution or termination of the agreement where the non-performance of one of the co-contractors due to FM may lead to the non-performance of the other co-contractor and hence have the effect of the mutual extinction of the obligations of the parties. Parties have always the right to renegotiate the terms and conditions of the agreement if they both agree to.