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The New French Contract Law and Its Impact on Commercial Law: Good Faith, Unfair Contract Terms and Hardship

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The Future of the Commercial Contract in Scholarship and Law Reform

Abstract

This chapter considers the impact on commercial law of the new French Contract Law enacted in the Ordonnance No 2016-131 of 10 February 2016 through the lens of three major (and relatively innovative) provisions—good faith, unfair contract terms and hardship (imprévision). As ‘common’ law of contract, the revised French Civil Code provisions apply to all contracts, whatever their classification, be they civil or commercial; inevitably they can complement or clash with those in the Commercial Code. After introducing the genesis and objectives of the French reform of contract law, the chapter analyses the commercial impact of the provisions relating to good faith, unfair contract terms and hardship successively. The author shows that commercial parties have an ever-greater incentive to draft clear terms in their contract if they want to steer away from the application of the new common law of contract and increased judicial oversight.

My thanks go to Maren Heidemann for her invaluable support.

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Notes

  1. 1.

    See Argentinian code. See also Bell et al. (2008), p. 458.

  2. 2.

    Italian and Swiss legal systems, for instance.

  3. 3.

    See Bell et al. (2008), p. 453.

  4. 4.

    Pédamon and Kenfack (2015), p. 1.

  5. 5.

    Ordonnance no 2016-131 du 10 février 2016 portant réforme du droit des contrats, du régime général et de la preuve des obligations, Journal Officiel de la République Française (JO) of 11 February 2016. The Ordonnance was translated by Cartwright, Fauvarque-Cosson, and Whittaker: http://www.textes.justice.gouv.fr/art_pix/THE-LAW-OFCONTRACT-2-5-16.pdf. Many of the translations of the new articles used in this chapter are based on their work and the author’s own translation. The Ordonnance was ratified by Act No2018-287 of 20 April 2018 (Loi No 2018-287 du 20 avril 2018 ratificant l’ordonnance No 2016-131 du 10 février 2016 portant réforme du droit des contrats, du régime général et de la preuve des obligations).

  6. 6.

    Article 1105 CC—Les contrats, qu’ils aient ou non une dénomination propre, sont soumis à des règles générales, qui sont l’objet du présent sous-titre. Les règles particulières à certains contrats sont établies dans les dispositions propres à chacun d’eux. Les règles générales s’appliquent sous réserve de ces règles particulières.

  7. 7.

    Rapport au Président de la République relatif à l’Ordonnance no 2016-131 du 10 février 2016 portant réforme du droit des contrats, du régime général et de la preuve des obligations (Rapport au Président).

  8. 8.

    Djankov and McLiesh (2004). The 2004 report was critical of the ‘French civil tradition’ and presented the common law as the ideal model in the business world. The following reports have not been as critical.

  9. 9.

    Unidroit Principles of International Commercial Law (1994 revised in 2004 and more recently in 2016); the Principles of European law of Contracts published between 1995 and 2003; and the draft European Common Frame of Reference.

  10. 10.

    The Ministry of Justice received authorisation to reform the law of contract by way of ordonnance (decree) pursuant to the Act No 2015-177 of 16 February 2015 relating to the modernisation and simplification of law and procedures in the fields of justice and home affairs.

  11. 11.

    Members of the Senate asked the Conseil Constitutionnel to review the constitutionality of giving the government authority to legislate on such an important topic without parliamentary debate. The Conseil Constitutionnel held that the authority complied with article 38 of the Constitution, which allows the government to legislate by decree in certain circumstances.

  12. 12.

    For a more extensive discussion as to the choice of an ordonnance, see Latina (2016), pp. 615–616.

  13. 13.

    Projet Catala (2006).

  14. 14.

    Ministère de la Justice, Projet de réforme du droit des contrats, July 2008 and 2009. See Terré (2008).

  15. 15.

    Latina (2016), pp. 617–619.

  16. 16.

    Ordonnance no 2016-131 du 10 février 2016 portant réforme du droit des contrats, du régime général et de la preuve des obligations, JO no 0035 of 11 Febr. 2016.

  17. 17.

    This is in conformity with Article 2 of the CC, which states that legislation provides only for the future; it has no retroactive effect. (See Civ. 27 May 1861, DP 1861, 244,). It has been held that the new legislation may not govern the effects of contracts that were concluded before, except if provided expressly (Cass. Civ. 3, 3 July 1979, n° 77-15.552; Civ. 3, 11 June 1997, Bull.129, Civ. 1, 17 March 1998, Bull.115, and more recently Cass. Civ. 1re, 12 June 2013, n° 12-15.688).

  18. 18.

    Only three provisions apply to current contracts from 1st October 2016; they are articles 1123 (third and fourth subparagraph), 1158 and 1183 CC—all three articles relating to the request of information about the contract (actions interrogatoires). See Francois (2016), pp. 506–509. All pre-existing contracts will continue to be subject to the law that was in force when they were concluded, including any future effects, although in practice it is likely that courts will look at the old provisions and their effects through the lens of the new provisions.

  19. 19.

    Rapport au Président (2016).

  20. 20.

    Rapport au Président (2016). For a discussion of the new standards of interpretation that the judges have been given, see infra.

  21. 21.

    Chantepie and Dissaux (2016), p. 575.

  22. 22.

    See Cacciaguidi-Fady and Wagner (2006), pp. 19–32, in Chassagnard-Pinet (2016), p. 583.

  23. 23.

    Rapport au Président (2016).

  24. 24.

    See infra.

  25. 25.

    Article 1183 CC with respect to a possible termination of the contract. With respect to third party, Articles 1123 and1158 CC define the right of third parties to request information (‘interrogate’) the concerned parties about the contract.

  26. 26.

    Whose value is constitutional.

  27. 27.

    See definition of Directeur, directrice in Cornu (2016).

  28. 28.

    Rapport au Président (2016) states that the Preliminary Provisions do not have a superior value that would give judges increased power of interpretation.

  29. 29.

    Mekki (2016a) No 1–3, p. 1.

  30. 30.

    See infra for a discussion of Article 1112 CC.

  31. 31.

    By contrast, see for a comparative analysis of good faith in English and German law, Teubner (1998).

  32. 32.

    Dans la loyauté contractuelle, ‘le critère pertinent n’est pas la morale de la sociabilité, mais plus prosaïquement le respect du but économique recherché’, Stoffel-Munck (2000). Contra, Chazal (2003), p. 114.

  33. 33.

    Leggatt (2016) available at: https://www.judiciary.gov.uk/announcements/speech-by-mr-justice-leggatt-contractual-duties-of-good-faith/. The author disagrees with Justice Leggatt’s claim that good faith is imposed upon the parties in the interest of a broader public policy in French law (at paras 7 and 9).

  34. 34.

    See infra for a discussion of these articles.

  35. 35.

    Cass. Com. 18 June 2002, no 99-16.488.

  36. 36.

    Affaire Manoukian, Cass. Com 26 Nov. 2003, Nos 00-10.243 and 00-10.949; D. 2004.869, note Dupre Dallemagne; JCP 2004, I, 163, obs. Viney; JCP E 2004, 738, obs. Stoffel-Munck; RDC 2004. 257, obs. Mazeaud; RTD civ 2004.80, obs. J. Mestre and Fages.

  37. 37.

    Cass. Civ. 3, 21 March 2012, No 11-14. 174; Bull. civ. No 49; RDC 2012. 753, obs. Laithier; ibid. 807, obs. Deshayes.

  38. 38.

    Cass. Civ. 1, 16 Febr. 1999, No 96-21.997; Bull. civ. I, No 52.

  39. 39.

    Cass. Com. 3 Nov 1992, No 90-18.547, Bull. civ. IV, No 338; JCP ed. G 1993.II; 22614, note Virassamy; Defrenois 1993 1377, obs. Aubert; RTD civ. 1993.124, obs. Mestre; Contr. Conc. Consom. 1993, No 45, obs. Malaurie-Vignal.

  40. 40.

    See infra for a discussion on hardship.

  41. 41.

    Cass. Civ 3, 9 Dec 2009, No 04-19.923; Bull. civ. III, No 275; RDC 2010.561, obs. Laithier; ibid.564, obs. Mazeaud.

  42. 42.

    Com., 10 July 2007, JCP 2007.II.10154, note Houtcieff, D.; D. 2007, p. 2844, note Gautier, p. 2839, note Stoffel-Munck. The Commercial chamber quashed the decision of the lower court on the basis of the now old Article 1134 al 1 and 3 of the CC and held that “in deciding this way, whereas if the rule according to which the contracts must be performed in good faith enables the judge to punish the disloyal use of contractual provision, it does not authorise him to affect the substance itself of the rights and obligations legally agreed upon between the parties, the Court of appeal has violated, by wrong application, Article 1134 al 3 and by refusing to implement it, Article 1134 al 1.” The judges of the lower court had rejected the request of the beneficiary of a guarantee (garantie de passif) on the ground that as manager and main shareholder, he had exposed the company to the risk of tax penalty referred to in the guarantee and thus he could not, without violating his good faith, benefit from the guarantee.

  43. 43.

    For a discussion on the distinction between duty and obligation, see Mekki (2016b), p. 1207; Chazal (2003), p. 104. Although there is no reference to an actual duty of good faith, it has been understood that good faith creates a duty that precedes, and perhaps outlives, a valid contract.

  44. 44.

    Mazeaud (1999), p. 603, No 6; also from the same author (2003), p. 295.

  45. 45.

    See Article L. 330-3 and R. 330-1 and 2 of the Commercial Code.

  46. 46.

    Chazal (2003), p. 99, spec. p. 111.

  47. 47.

    Cass. Civ. 1, 28 May 2008, No 07-13.487; Bull. civ. I, No 154.

  48. 48.

    This is conformity with the current Baldus case law: Cass. Civ 1, 3 May 2000, No 98-11.381; Bull. civ. I, No 131; Cass. Civ. 3, 17 Jan 2007, No 06-10.442; Bull. civ. III.; D. 2007.1051, note Mazeaud; ibid.1054, note Stoffel-Munck; JCP 2007, II, 1042, Note Jamin; RTD civ. 2007.335, obs. Mestre and Fages.

  49. 49.

    Cass. Com., 31 Jan 2012, No 11-10.834 (non- published); Cass. Com. 10 July 2012, No 11-21.954, Bull civ. IV, No 149, Bull. Joly 2012, 767, note Stoffel-Munck.

  50. 50.

    Cass. Com. 27 Febr. 1996, Bull. n° 65. See also Cass. Com. 30 Oct 2007 (non- published), pourvoi n° 06-20.944; Cass. Com. 20 Jan 2015, non publié, pourvoi n° 13-24.231. Mestre (1986), p. 101; Picod (1988).

  51. 51.

    Cass. Civ. 24 Sept. 2002 (non- published) pourvoi No 99-13.537.

  52. 52.

    See definition of loyauté in Cornu (2016).

  53. 53.

    In an insurance contract, duty of loyalty and sincerity of the insured to the insurer, see Cass. Civ 1., 28 March 2000, Bull. civ. I, No 101.

  54. 54.

    Cass. Com., 24 Nov 1998, No 96-18.357, Bull. civ. IV, No 277; Defrénois 1999.371, obs. Mazeaud; JCP ed G.I. 143, note Jamin.; RTD civ 1999.98, obs. Mestre, J. and 646, obs. Gautier. Three companies had entered into a commercial agency contract with an agent for the exclusive sale of their products to importers, wholesalers and retailers in the Indian Ocean. A little while after, it emerged that the (potential) clients of the appointed agent could purchase their products directly from purchasing pools in mainland France. The agent then terminated all commercial relationships with the principals and asked for damages.

  55. 55.

    Cass. Com. 29 March 2017, No 15/26476, LD May 2017, obs. S.B.

  56. 56.

    Leggatt (2016) available at: https://www.judiciary.gov.uk/announcements/speech-by-mr-justice-leggatt-contractual-duties-of-good-faith/. The author disagrees with Justice Leggatt’s claim that ‘good faith limits (the Parties’) freedom in making contracts in the first place’ (at 7).

  57. 57.

    Campbell (2014), p. 485.

  58. 58.

    Leggatt (2016) available at: https://www.judiciary.gov.uk/announcements/speech-by-mr-justice-leggatt-contractual-duties-of-good-faith/.

  59. 59.

    Pédamon and Chuah (2013), p. 36.

  60. 60.

    Rousseau (1762).

  61. 61.

    Fouillée (1880), p. 410; see also Spitz (2007), p. 281.

  62. 62.

    Collins (2008), p. 2 with respect to the 1993 Directive on unfair terms in consumer contracts.

  63. 63.

    Article 1171 CC, as amended by the Ratification Act, provides that “(i)n a standard form contract, any non-negotiable, determined in advance by one of the parties, term which creates a significant imbalance in the rights and obligations of the parties to the contract may be deemed invalid [réputée non écrite]. The assessment of significant imbalance does not concern either the main subject-matter of the contract nor the adequacy of the price to the obligation.”

  64. 64.

    For a critical discussion of unfair terms in standard form contracts, see Bicheron (2015), Boffa (2015) and Revet (2015).

  65. 65.

    Articles L. 212-1 to 212-3; L. 232-1, L. 241-1 to L. 241-2, L. 822-4 to L. 822-6, L. 822-9 and L. 822-10 in the Consumer Code.

  66. 66.

    For a rejection of the application of these statutory provisions to a merchant with respect to a contract for the supply of electricity—see Cass. Civ. 1, 24 Jan 1995, D. 1995, J, 327, note Paisant; D. 1995. Somm. 229, obs. Delebecque; D. 1995. Somm. 310, obs. Pizzio; to a glass maker with respect to a contract for the supply of water, see Civ. 1, 3 Jan. 1996, D. 1996. 228, note Paisant; D. 1996. Somm. 325, obs. Mazeaud; RTD Civ. 1996.609, obs. Mestre.

  67. 67.

    Act No 2008-776 of 4 August 2008 for the modernisation of the economy. For a general discussion of Article L. 442-6, I, 2° of the Commercial Code, see Pédamon and Kenfack (2015) at No 642.

  68. 68.

    Article L 442-6 Com. C, as amended by Act n ° 2010-874 of 27 July 2010—“I. Make the party liable, and force him to remedy the damage caused, the act by any producer, trader, industrial or person registered in the Commercial Registry: 1° (…); 2° To impose, or attempt to impose, upon a trading partner obligations creating a significant imbalance in the rights and obligations of the parties; (…).” The Constitutional Council has declared that this article was ‘conformed’ to the Constitution in a decision of 13 Jan 2011; see Cons. Const., 13 Jan 2011, No 2010-85 QPC, Dalloz actualité, 19 Jan. 2011, obs. Chevrier; D. 2011.415, note Picod; ibid. 392, Chron. Chagny; ibid. 2823, obs. Roujou de Boubee, Gare, Mirabail and Potaszkin; RTD Civ. 2011. 121, obs Fages RTD Com. 2011. 655, obs. Bouloc.

  69. 69.

    See article L. 410-1 of the Commercial Code.

  70. 70.

    CA Paris, 29 Oct 2014, No 13/11059, RJDA 2015, No 146.

  71. 71.

    CA Paris, 29 Oct 2014, No 13/11059, RJDA 2015, No 146.

  72. 72.

    Ibid.

  73. 73.

    CA Paris 19 April 2017, No 15/24221, LD May 2017, P.1, obs. N.E.

  74. 74.

    CA Paris 27 Sept. 2017, No 16/00671; also CA Paris 21 Sept. 2016, No 14/06802, LD Oct. 2016, p.1, obs. N.E.

  75. 75.

    Cass. Com. 25 Oct. 2017, No 16-16839.

  76. 76.

    Cass. Com. 8 Febr. 2017, No 15-23050; Cass. Com. 11 May 2017, No 14-29717

  77. 77.

    Cass. Com. 25 Jan. 2017, No 15-23547, LD Febr. 2017, obs. N.E.

  78. 78.

    Cass. Com. 27 May 2015, No 14-11.387.

  79. 79.

    Cass. Com. 25 Jan. 2017, No 15-23547 – qu’il suit de là que l’article L. 442-6, I, 2° du code de commerce autorise un contrôle judiciaire du prix, dès lors que celui-ci ne résulte pas d’une libre négociation et caractérise un déséquilibre significatif dans les droits et obligations des parties.

  80. 80.

    Cass. Com. 25 Jan. 2017, No 15-23547, LD Febr. 2017, p. 1, obs. N.E.

  81. 81.

    CA Paris 4 July 2013, No 12/07651.

  82. 82.

    CA Paris 11 Sept 2013, No 11/17941.

  83. 83.

    CA Paris 20 Nov. 2013, No 12/04791.

  84. 84.

    Behar-Touchais (2015). See for a discussion of unfair contract terms in B2B transactions involving Micro and Small Businesses in English law, Australian law and US law, Hourani in this volume.

  85. 85.

    CA Paris 25 Nov 2016, No 16/08557, LD Jan 2017, P. 1, obs. S.C. In this case, the Court of Appeal held that the provisions relating to commercial leases are exclusive from a joint (or alternative) application of Article L. 442-6 of the Commercial Code.

  86. 86.

    Cass. Com. 11 May 2017, No 14-29717, LD June 2017, obs. N.E.

  87. 87.

    Ibid.

  88. 88.

    CA Paris, 7 June 2013, RTD com. 2013. 500, obs. Chagny.

  89. 89.

    Cass. Com. 25 Jan. 2017, No 15-23547, LD Febr. 2017, p. 2, obs. N.E.

  90. 90.

    Art L. 442-6 I 2 requires that any claims be lodged only with specific jurisdictions that are one of the eight commercial courts (tribunaux de commerce) and on appeal, the Court of Appeal of Paris, which has an exclusive competence to hear these claims.

  91. 91.

    See supra.

  92. 92.

    Art 4(2) of the European Directive 93/13/EEC.

  93. 93.

    Cass. Com. 6 Febr. 2007, no 04-13.178, Bull. civ. IV, No 21; Cass. Com. 13 Jan.2009, No 08-20.411.

  94. 94.

    See also for Japanese law, Karaiskos in this volume.

  95. 95.

    Cass. Civ., 6 March 1876, DP 1876.1.193. In contrast, see the case-law of administrative courts, such as Gaz de Bordeaux, CE 30 March 1916, Recueil Dalloz 1916.3.25.

  96. 96.

    For a comparative and general development on hardship in transnational commercial contracts, see Pédamon and Chuah (2013). See also Cass. Com. 3 Nov 1992, Huard RTDC 1993.124; Cass. Com. 24 Nov 1998, Chevassus-Marche RTDC 1999.98; CA Nancy 26 Sept 2007 Novacarb, D. 2008.1120; Cass.Com 29 June 2010, Soffimat JCP 2010, ED g. 1056.

  97. 97.

    Act Hamon of 17 March 2014 (Act n° 2014-344 of 17 March 2014).

  98. 98.

    This Article covers the contracts whose performance exceeds 3 months for the sale of products listed in the 2nd subparagraph of Article L. 442-9, and supplemented, if need be, by decree. This Article refers to these products whose “prices of production can be significantly affected by the fluctuation of prices of agricultural raw and food products.”

  99. 99.

    The fact of not foreseeing a renegotiation clause in conformity with the first two subparagraphs of this article, of not respecting the time allowed in the 3rd subparagraph, of not preparing the minutes envisaged in the same 3rd subparagraph or violating trade secrets or business confidentiality during the renegotiation, shall be liable of a fine of no more than 75,000 Euros for a natural person and 375,000 Euros for a legal person. The fine is imposed in the conditions set in article L. 465-2. The maximum fine is doubled in the event of a repeated breach within a period of 2 years from the date from which the first decision became final.

  100. 100.

    UNIDROIT Principles 2016 available at http://www.unidroit.org/instruments/commercial-contracts/unidroit-principles-2016.

  101. 101.

    § 313 BGB refers to ‘the contractual basis’ (Grundlage des Vertrags). This article has been translated in English by Geoffrey Thomas and Gerhard Dannemann and is available at www.iuscomp.org/gla/statutes/BGB.htm.

    § 313 BGB—Interference with the basis of the transaction

    1. (1)

      If circumstances upon which a contract was based have materially changed after conclusion of the contract and if the parties would not have concluded the contract or would have done so upon different terms if they had foreseen that change, adaptation of the contract may be claimed in so far as, having regard to all the circumstances of the specific case, in particular the contractual or statutory allocation of risk, it cannot reasonably be expected that a party should continue to be bound by the contract in its unaltered form.

    2. (2)

      If material assumptions that have become the basis of the contract subsequently turn out to be incorrect, they are treated in the same way as a change in circumstances.

    3. (3)

      If adaptation of the contract is not possible or cannot reasonably be imposed on one party, the disadvantaged party may terminate the contract. In the case of a contract for the performance of a recurring obligation, the right to terminate is replaced by the right to terminate on notice.

  102. 102.

    Chantepie and Latina (2016), p. 445.

  103. 103.

    Pédamon and Chuah (2013), Chapter 3.

  104. 104.

    See Société Dupiré Invicta Industrie v Société Gabo, Cass. Com. 17 Febr 2015 (non published). For a discussion of the use of the PICC to interpret hardship claims under the CISG, see Ferrari et al. (2017). See also Scafom International BV v Lorraine Tubes S.A.S, Belgiam Cass. Com 19 June 2009, available in English at http://cisgw3.law.pace.edu/cases/090619b1.html. This case has been subject to extensive comments in Pédamon and Chuah (2013).

  105. 105.

    Société Romay AG v. SARL Behr France, Cass. Civ. 30 June 2004, RTDC 2004.845, obs. Delebecque; Pan. 2004.2281, obs. Witz. See translation available at http://cisgw3.law.pace.edu/cases/040630f1.html:

    As a professional who is familiar with the practices of international trade, it was for [Buyer] to provide contractual mechanisms of guarantee or revision of contract. (…) (I)n the absence of such provisions, it was for [Buyer] to bear the risk of non-performance without being able to benefit from the provisions of Article 79 CISG (…).

  106. 106.

    The Oberlandesgericht Hamburg (28 Feb 1997, No 167, CISG-online 261 cited by Schwenzer (2008), p. 715, did not exempt a seller from liability under Article 79 of the CISG although the market price for the goods, iron molybdenum, from China, had risen by 300%. The Court reasoned that the sector was notorious for price fluctuations and that that fact was known to the parties. As such, a higher threshold must be applied as to what constitutes hardship. See Pédamon and Chuah (2013), p. 30.

  107. 107.

    Cass. Com. 17 Febr 2015, No 1501, available at http://www.cisg.fr/decision.html?lang=fr.

  108. 108.

    Ibid, p. 2.

  109. 109.

    Aynès (2005), No 30.

  110. 110.

    For a discussion of the right to adapt the contract in German law, see Pédamon and Chuah (2013), p. 30.

  111. 111.

    For a discussion of the minority view, following a decision dated 30 Sept 2011 that held that “the right (of the aggrieved party) to the adaptation of the contract obliges the other party to cooperate to this adaptation,” see Pédamon and Chuah (2013), p. 30.

  112. 112.

    For a discussion on the emergence of an obligation to renegotiate in French law, Pédamon and Chuah (2013) pp. 37–48.

  113. 113.

    This duty to renegotiate is also being discussed in Italy and the Netherlands as for the time being, the statutory provisions in these countries do not provide for one. In Germany, in a decision of 30 September 2011, the Bundesgerichtshof held that “the right (of the affected party) to the adaptation of the contract obliges the other party to cooperate to this adaptation.”

  114. 114.

    See supra for a discussion of good faith.

  115. 115.

    Cass. Com. 17 Febr 2015, No 1501, available at http://www.cisg.fr/decision.html?lang=fr.

  116. 116.

    See supra for a discussion of unfair contract terms.

  117. 117.

    Article 1194 CC—‘Contracts create obligations not only in relation to what they expressly provide, but also to all the consequences which deride from equity, practice or legislation.’

  118. 118.

    In Scafom International BV v Lorraine Tubes S.A.S., the court of first instance noted the absence of such clause. In an Italian case, Ravennavi S.P.A. v Handitankers, 19 May 2011, the Ravenna court also noticed the failure of the parties to insert a hardship clause.

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  1. Westminster Law School, University of Westminster, London, UK

    Catherine Pédamon

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  1. Catherine Pédamon
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  1. Institute of Advanced Legal Studies, School of Advanced Studies, University of London, London, UK

    Maren Heidemann

  2. Law School, University of Exeter, Exeter, UK

    Joseph Lee

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Pédamon, C. (2018). The New French Contract Law and Its Impact on Commercial Law: Good Faith, Unfair Contract Terms and Hardship. In: Heidemann, M., Lee, J. (eds) The Future of the Commercial Contract in Scholarship and Law Reform. Springer, Cham. https://doi.org/10.1007/978-3-319-95969-6_5

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