A major reform of contract law has been adopted in France. Compared to the Civil Code of 1804, this reform is a real revolution in French contractual law and should be known and anticipated by all companies active in France.
You will find below the orginal text of the French Law resulting from the Order of February 10, 2016 reforming contract law, the general scheme and proof of obligations (JO, February 11, 2016) and a translation in English.
This new contract law (which must still be ratified by Parliament) will, in principle, enter into force on October 1, 2016. According to the Government, the reform will give France a clearer, more protective and more attractive law. A careful examination of the text rather suggests that the future French contract law will become more uncertain and more unpredictable, less protective and less efficient, with little attractiveness and competitiveness.
The result of ideological prespositions of another era, the reform replaces specific concepts, defined by abundant case law, with vague and uncertain concepts that will fuel litigation. It weakens the contract and enables it to be challenged across the board: it allows the contractual partner to invoke abuse of dependency to obtain its cancellation, sanctions any unbalanced clause in standard-form contracts, including between professionals, and allows each party to apply to the Court for its revision in the event of unforeseeable circumstances. This hyper-protection of the supposedly weak counterparty will most certainly lead companies to refrain from contracting with economically dependent parties. The Government is sacrificing freedom of contract for the sake of legal protectionism.
In international relations, companies will avoid this new contract law. Foreign companies will prefer to submit their relations with French partners to a law which is more protective of the will of the parties and less random, such as Swiss law. Correlatively, French companies will suffer from a competitive handicap as in their relations with French contractors, they will be subject to French law while their foreign competitors will escape this by providing a clause attributing jurisdiction to a foreign court and by submitting their contract to foreign law. How can we prepare for the reform?
1. Conclude the company’s major contracts before October 1, 2016 under the former contract law.
As the Order currently stands, its provisions will enter into force on October 1, 2016 but, in accordance with the usual rules of transitional law, almost all of its provisions will not apply to current contracts which, if they are concluded before this date, shall remain subject to the former law. Companies will therefore conclude major contracts as quickly as possible to take advantage of the former law, more protective of the will of the parties.
2. Keep proof of compliance with the duty of pre-contractual information.
The new law provides for a very broad duty of pre-contractual information which requires the debtor to ascertain what information is decisive for the consent of the other party. It will inform it and above all, will document this process.
3. Negotiate contracts differently.
When clauses which may give rise to a significant imbalance between the parties’ rights and obligations may be declared unfair in any standard-form contract, companies will avoid non-reciprocal obligations, discretionary or disproportionate rights and will describe in the contract all benefits conferred on the other party without unilaterally reserving unnecessary rights.
4. Provide reasons for price increases.
If the right to unilaterally set prices is maintained only in framework contracts, subject to the absence of abuse, the other party using this possibility is now bound by an obligation to state the reasons, which it will comply with. Companies will therefore anticipate increases which are difficult to explain.
5. Avoid inappropriate supplemental provisions.
Some of the provisions of the Order are of a supplemental nature. Therefore, unforeseeable circumstances may be set aside by agreement between the parties.
6. Provide a clause setting the duration of the contractual notice period.
Although it is not possible to exclude the application of Article L. 442-6, I, 5° of the Commercial Code, which imposes the obligation to observe a notice period taking into account the duration of the commercial relationship between the parties in case of termination of an established commercial relation, for contracts subject only to common civil law, it appears possible to agree on a contractual notice period to deviate from the legal notice obligation imposed by ordinary contract law. It will therefore be more prudent to determine a fixed notice period to limit the risk of having to observe a very long notice period in a contract not subject to Article L. 442-6.
7. Assess the advisability of making international contracts subject to the law and courts of another country.
The legal uncertainty generated by the new contract law could lead to parties in international cpntracts opting for countries where the law is more stable and the courts are more likely to give effect to the will pf the parties, such as Swiss law, and to securing this choice of applicable law by attributing jurisdiction to a foreign court or arbitrator.
8. Choose your trading partners carefully.
Businesses should avoid those partners likely to use the new contract law provisions to turn contracts into litigation traps, and instead favor trusted, non-dependent partners.