This was the question at the heart of the debate organised by the French Chamber of Commerce at the London office of the law firm Bryan Cave on 26 January 2017 (more details of the event can be found on the ccfgb website). The panel included a French lawyer from Bryan Cave, the Head of the LLM Course in International Commercial Law at Westminster Law School, an English solicitor from Bryan Cave and an English in-house counsel. The moderator was a well-known arbitrator.
The subject of the debate stemmed from the introduction of the new French Ordinance n°2016-131 of 10 February 2016 that came into force on 1 October 2016. This ordinance amends the general regime of obligations and proof of obligations under French law (Title III of Book III of the French Civil Code).
The arguments put forward during this lively debate are presented below in the form of a table and have been grouped around the four main concepts discussed. For the sake of completeness, I have also added a short background explanation for each concept, as well as replicating the original French articles (published on Legifrance) and the official English translations of these (available on http://www.textes.justice.gouv.fr).
Arguments against (English law will remain the preferred governing law of international contracts) | Arguments in favour (French law will become the preferred governing law) |
General | |
|
|
Article 1188 – Interpretation | |
French Article:
Le contrat s’interprète d’après la commune intention des parties plutôt qu’en s’arrêtant au sens littéral de ses termes. Lorsque cette intention ne peut être décelée, le contrat s’interprète selon le sens que lui donnerait une personne raisonnable placée dans la même situation. English translation: A contract is to be interpreted according to the common intention of the parties rather than stopping at the literal meaning of its terms. Where this intention cannot be discerned, a contract is to be interpreted in the sense that a reasonable person placed in the same situation would give to it. |
|
|
|
Article 1104 – Duty of Good faith | |
French Article:
Les contrats doivent être négociés, formés et exécutés de bonne foi. Cette disposition est d’ordre public. English translation: Contracts must be negotiated, formed and performed in good faith. This provision is a matter of public policy. |
|
Background:
The principle of good faith already existed in the Civil Code (performance in good faith). This duty is now extended, in line with existing case law, to cover the pre-contractual negotiations and their termination. Breach of this duty creates the right to damages for losses incurred during negotiations, but does not include loss of opportunity and loss of profit. |
|
|
|
Article 1112-1 – duty to disclose essential information | |
French Article:
Celle des parties qui connaît une information dont l’importance est déterminante pour le consentement de l’autre doit l’en informer dès lors que, légitimement, cette dernière ignore cette information ou fait confiance à son cocontractant. […] Les parties ne peuvent ni limiter, ni exclure ce devoir. Outre la responsabilité de celui qui en était tenu, le manquement à ce devoir d’information peut entraîner l’annulation du contrat dans les conditions prévues aux articles 1130 et suivants. English Translation: The party who knows information which is of decisive importance for the consent of the other, must inform him of it where the latter legitimately does not know the information or relies on the contracting party. […] The parties may neither limit nor exclude this duty. In addition to imposing liability on the party who had the duty to inform, his failure to fulfil the duty may lead to annulment of the contract under the conditions provided by articles 1130 and following. |
|
Background:
This duty is not new. It already existed in consumer contracts and insurance contracts, for example. It was also applied to some contracting parties, in particular to professionals. The February 2016 reform broadens the principle to any contract. |
|
|
|
Article 1171 – Sanction in case of abusive clauses and the concept of significant imbalance between the rights and obligations of contractual parties. | |
French Article:
Dans un contrat d’adhésion, toute clause qui crée un déséquilibre significatif entre les droits et obligations des parties au contrat est réputée non écrite. L’appréciation du déséquilibre significatif ne porte ni sur l’objet principal du contrat ni sur l’adéquation du prix à la prestation. English translation: Any term of a standard form contract which creates a significant imbalance in the rights and obligations of the parties to the contract is deemed not written. The assessment of significant imbalance must not concern either the main subject- matter of the contract nor the adequacy of the price in relation to the act of performance. |
|
Background:
This is an innovation under contract law (although this concept already existed in the French Consumer Code and Commercial Code). The scope of such abusive clauses is, however, limited to “standard-form” contracts (defined by new Article 1110 as contracts whose general terms and conditions are not subject to negotiation and are determined by one of the parties in advance). There is no express list of clauses presumed to create a “significant imbalance”, but the courts are likely to follow precedents in consumer and commercial law. This provision is a public policy provision since such clauses are deemed unwritten (i.e. void). |
|
|
|
Article 1195 – Hardship | |
French Article:
Si un changement de circonstances imprévisible lors de la conclusion du contrat rend l’exécution excessivement onéreuse pour une partie qui n’avait pas accepté d’en assumer le risque, celle-ci peut demander une renégociation du contrat à son cocontractant. Elle continue à exécuter ses obligations durant la renégociation. En cas de refus ou d’échec de la renégociation, les parties peuvent convenir de la résolution du contrat, à la date et aux conditions qu’elles déterminent, ou demander d’un commun accord au juge de procéder à son adaptation. A défaut d’accord dans un délai raisonnable, le juge peut, à la demande d’une partie, réviser le contrat ou y mettre fin, à la date et aux conditions qu’il fixe. English translation: 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. 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. |
|
Background
This is one of the most important innovations and one of the most criticized. This concept was already used by administrative courts as the Government may provide the option to its contractual party to adapt a contract in the event of an unforeseeable change of circumstances. However, private law always refused to recognize this concept and excluded the renegotiation or termination of a private-law contract in case of hardship. By extending this concept to all contracts, the legislators want to fight against contractual imbalances that occur during the performance of the contracts (objective of contractual justice) |
|
|
|
Articles 1123 & 1124 – Unilateral promises | |
French Articles:
Art. 1123: […] Lorsqu’un contrat est conclu avec un tiers en violation d’un pacte de préférence, le bénéficiaire peut obtenir la réparation du préjudice subi. Lorsque le tiers connaissait l’existence du pacte et l’intention du bénéficiaire de s’en prévaloir, ce dernier peut également agir en nullité ou demander au juge de le substituer au tiers dans le contrat conclu. Le tiers peut demander par écrit au bénéficiaire de confirmer dans un délai qu’il fixe et qui doit être raisonnable, l’existence d’un pacte de préférence et s’il entend s’en prévaloir. L’écrit mentionne qu’à défaut de réponse dans ce délai, le bénéficiaire du pacte ne pourra plus solliciter sa substitution au contrat conclu avec le tiers ou la nullité du contrat. Art. 1124: […] La révocation de la promesse [unilatérale] pendant le temps laissé au bénéficiaire pour opter n’empêche pas la formation du contrat promis. Le contrat conclu en violation de la promesse unilatérale avec un tiers qui en connaissait l’existence est nul. English translation: Art. 1123: […] Where a contract has been concluded with a third party in breach of a pre-emption agreement, the beneficiary of that agreement may obtain reparation of the loss that he has suffered. Where the third party knew of the existence of the pre-emption agreement and of the beneficiary’s intention to take advantage of it, the beneficiary may also sue for nullity or may ask the court to substitute him for the third party in the contract that has been concluded. The third party may give written notice to the beneficiary requiring him to confirm, within a period which the former fixes and which must be reasonable, the existence of a pre-emption agreement and whether he intends to take advantage of it. Such a written notice must state that if he does not reply within that period, the beneficiary of the pre-emption agreement will no longer have the right to claim either to be substituted in any contract concluded with the third party, or nullity of the contract. Art. 1124. – […] Revocation of the [unilateral] promise during the period allowed to the beneficiary to exercise the option does not prevent the formation of the contract which was promised. A contract concluded in breach of a unilateral promise with a third party who knew of its existence, is a nullity. |
|
Background
Before the reform, if a unilateral promise was revoked within the period before the final contract is concluded, the beneficiary could only seek damages. Following the new law, the beneficiary will not only be entitled to seek damages but may instead request the judge to order the promisor to enter into the contract which has been agreed pursuant to the promise. |
|
|
|
Other comments and references | |
|
|
At the end of the debate, the audience was asked to vote on whether French contract law would soon govern international business transactions. Unsurprisingly, the overwhelming majority of those present voted against the motion.