By Guillaume Boisson, Marion Lagrange, Clara Marco, University of Montpellier, Centre du Droit de l'Entreprise, Program of Master 2 "Droit du Commerce International"
The French Civil Code will be substantially reformed by an Ordinance to be enacted before February 17, 2016. The new Code will innovate on major aspects of French contract law so as to reinforce its economic efficiency and its attractiveness.
This reform will mainly affect contracts governed by French law but may also influence contracts governed by the law of jurisdictions either based on or inspired by the French Civil Code.
This QuickCounsel aims at studying three main themes of the reform: the acknowledgment of the concept of significant imbalance, the recognition of the unforeseeability doctrine and the installation of a new legal regime regarding the price.
The Acknowledgement of the Concept of Significant Imbalance
As of today, under French law, the notion of significant imbalance is only admitted for commercial and consumer contracts.
Through the reform, the French legislator wants to extend this notion to all private contracts, whatever the quality of the contracting parties. Accordingly, a new article 1169 will sanction the clauses that create significant imbalance between the parties to a contract. This article will provide both indications relating to the appreciation of the notion (1) and the sanction to be applied by the judge to any provision creating a significant imbalance (2).
1. The appreciation of significant imbalance
Under French consumer law (L132-1 Consumer Code), the provisions leading to a significant imbalance to the detriment of the consumer or the non-professional are already deemed abusive. With respect to French commercial law, article L442-6 of the Commercial Code sanctions business partners who subject their business counterparts to obligations creating a significant imbalance.
Paragraph 2 of article 1169 will state instructions regarding the object of this appreciation. It will focus on neither the object of the contract nor the adequacy of the price with the performance. In this sense, article 1169 of the project will be quite similar to article L312-1 of the French Consumer Code. However, it must be distinguished from article L442-6 of the Commercial Code, which allows the appreciation of the significant imbalance relating to the price.
2. The sanction of significant imbalance
Article 1169 will provide for the removal of the clause containing the abusive terms. The request will have to be introduced before a court by the contracting party suffering from these abusive terms. However, the judge will not have the obligation to remove the abusive clause; he will only have a possibility to do so.
Thus, article 1169 will differ from article L132-1 of the French Consumer Code providing that the abusive clause is deemed null and void.
The Recognition of the Unforseeability Doctrine
Unforeseen circumstances may affect the economic equilibrium of contracts of successive performance and make the performance of the obligation excessively onerous or expensive for one of the contracting parties. Under a rebus sic stantibus regime, this may call for the revision of the contract. French private law used to reject this theory, called "théorie de l'imprévision" and also known as the "unforeseeability doctrine" in English.
The reform will provide an article relating to the notion of unforeseeability which will bring some substantial changes by recognizing the possibility to adapt the contract (1). However the impact of the reform may not be that important in practice (2).
1. The possibility to adapt the contract under the unforeseeability doctrine
The new article 1196 will provide the following three-step mechanism:
- The contracting party estimating that the performance of the contract has become excessively expensive, as a result of an external event strongly affecting the contract, may ask for the renegotiation of the contract with the other contracting party, if it has not accepted such risks at the time of the contract conclusion.- In case of failure of the negotiation or refusal from the other contracting party to renegotiate, both parties may ask the judge to adapt the contract to the new economic or financial situation by mutual agreement.- Failing a mutual agreement, one of the contracting parties may ask the judge to terminate the contract.
2. The impact of the unforeseeability doctrine in practice
Article 1196 of the reform will reflect an important evolution in French contract law through the submission of the binding force of a contract to the judge's power, under certain circumstances. However, the concrete impact of this article needs to be put into perspective with regard to the existing mechanisms that may circumvent its application.
In order to circumvent the application of future article 1196, two solutions can be considered.
Firstly, the parties can provide for clauses that will allow them to control the adaptation of the contract and thus prevent the intervention of the judge. Among others, these clauses may be hardship clauses, material adverse change clauses and gross up clauses.
Secondly, the parties may also provide a clause allocating to one of them the burden of a specific risk and then depriving it from its right to ask for a judicial adaptation or termination of the contract.
Installation of a New Legal Regime Regarding the Price
The reform will contemplate rules regarding the fixation of the price (1), the revision of the price (2) and the reduction of the price as a remedy (3).
1. The fixation of the price under the new legal regime
In a sub-section, entitled "Content of the contract", the reform will authorize the unilateral determination of the price by one of the contracting parties in different types of contracts. Article 1163 will offer this possibility for framework contracts and for contracts of successive performance, upon condition that the party who determined the price gives justification in case of dispute. Furthermore, article 1164 will provide for a similar solution for service contracts: the creditor may fix the price, failing agreement between the parties before the contract performance. Here also, the creditor will have to be able to justify the unilaterally fixed price.
2. The revision of the price under the new legal regime
Upon demand of one of the contracting parties, the judge will have the right to review the price in certain types of contracts.
According to article 1163, the parties will have the right to ask the judge to review the price in framework contracts and contracts of successive performance, in case of unfair price unilaterally fixed by one of the parties.
As for service contracts, the judge may be asked by the debtor to fix the price himself, in case of disagreement with the creditor on the price issue, after the performance of the contract.
In both cases, this judicial review of the price will have to be made in accordance with usages, market prices or the parties' legitimate expectations. However, representatives of the French Ministry of Justice in charge of drafting the Ordinance have orally indicated that these measures would probably be reconsidered in the final version of the Ordinance.
3. The reduction of the price as a remedy under the new legal regime
The reform will also provide for a power of unilateral modification of the contract as a remedy in case of partial non-performance of a contract. Article 1223 will provide that the creditor may accept an incomplete performance of the contract and proportionally reduce the price.
In this sense, it is a form of unilateral partial resolution by the creditor, when he is not satisfied with an item or a service, or that it does not comply with the contractual dispositions.
This article will confer an important power to the creditor over the debtor. Indeed, if the price has not been fully paid yet, the creditor may decide by himself whether the performance of the contract is correct, without any judicial supervision, and unilaterally decide not to pay the price originally agreed between the parties.Furthermore, as there are no specified ways and means of evaluating a reduction of the price proportionate to the incomplete performance, article 1223 will give a wide power of estimation to the aggrieved party.
As the transitional legal provisions of the reform have not been drafted yet, questions will arise concerning the application of the reform to ongoing contracts (see QuickCounsel "Applicable law to a contract: What happens when the law changes?" dated November 23, 2015).
Furthermore, the reformed provisions of the Civil Code may be ruled out by special provisions contained in one of the other 69 Codes currently in force in France.
" Projet d'ordonnance portant réforme du droit des contrats, du régime général et de la preuve des obligations", Ministère de la Justice , available at: http://www.justice.gouv.fr/publication/j21_projet_ord_reforme_contrats_2015.pdf
N. DISSAUX and C. JAMIN, " Projet de réforme du droit des contrats, du régime général et de la preuve des obligations ", Editions Dalloz, 2015.
L. VOGEL and I. EID, "The French Civil Code Reform - revival or suppression of trade?", LexisNexis, June 1, 2015, available at: http://www.vogel-vogel.com/sites/vogel-vogel/files/Published.pdf
P. CATALA, "Proposals for Reform of the Law of Obligations and the Law of Prescription", translated by J. Cartwright and S. WHITTAKER, (Oxford, 2007) available at: http://www.justice.gouv.fr/art_pix/rapportcatatla0905-anglais.pdf
B. FAUVARQUE-COSSON, "The French Contract Law Reform in a European Context", 2014/1 ELTE Law Journal, (Budapest, 2014), p59-p71 available at: http://eltelawjournal.hu/wp-content/uploads/2014/10/Law_journal_2014_1_WEB.pdf