The government is insisting on having its contract law reform bill adopted at all costs. The fast–track adoption of the Act on the modernization and simplification of law and procedures in relation to justice and home affairs enacted on 16 February, 2015 (OJ of 17 February) has, after receiving approval from the Conseil constitutionnel, authorized the reform of the whole of the law of contracts by ordinance without any in-depth scrutiny by parliament. On Wednesday 25 February, Justice Minister Christiane Taubira presented the bill before the Council of Ministers and the provision was published on the Ministry of Justice website that same day. The legislative procedure to adopt the reform must be completed within 12 months maximum. In light of the considerable criticism of this method of reform of the Civil Code by way of ordinance without full parliamentary debate for such an important text, the Minister of Justice has promised that the bill will be subject to extensive consultation. Citizens will have the opportunity to express their views on the draft ordinance online, businesses will also have their say and the bill will be put before concerned authorities as well as experts, academics and practitioners. The aim of this initiative is to improve the bill before its examination by an inter-ministerial committee. The government has stated that it will introduce a specific ratification bill which is to be included in the legislative agenda thus allowing parliament to exercise the scrutiny it considers necessary and amend the bill on the points it considers important. This late change of heart is of course a positive step but does not really address the failings in the substance of the proposed reform and in the method of its adoption.
The consultation process, however widespread, of a document of 49 fully drafted and finalized pages containing several hundred articles cannot be properly reviewed with regard to its fundamental postulates; it should have been drafted from the outset, not in closed committees, but in consultation with market operators, rather than merely presenting them with a fait accompli as is now proposed. What is needed now is real debate instead of ex post facto opinions coming from all directions. Current sociological theory on decision-making practice supports adversarial discussions – public debate guarantees the right decisions can be made and avoids errors and inconsistencies. Prepared by a commission composed of the best lawyers of their day, the draft Civil Code of 1804 was not only first submitted for the observations of the Courts of Cassation and Appeal but also debated at length by the Conseil d’Etat in 109 plenary sessions, 57 of which were presided over by Napoleon Bonaparte without his point of view necessarily prevailing on each occasion (see Patrice Gueniffey, Bonaparte, Gallimard, 2013, p. 650-656). The government would have been well advised to heed the lessons of the past. Mere consultations are insufficient. In-depth reflection, discussions with the business sector and public debate would certainly be very helpful in the present case in light of the major substantive failings of this text.
The Taubira bill with its strong ideological slant is source of considerable legal uncertainty for undertakings and weakens France’s competitiveness in international trade.
Aspects which are unfavorable to undertakings
1. Reducing contractual freedom. Freedom of contract is relegated to a rank lower than other freedoms insofar as the Taubira bill provides that it may not “adversely affect the fundamental rights and freedoms recognized in an instrument applicable to relations between private persons” (new Article 1102 para. 2 of the Civil Code). Aside from the somewhat enigmatic nature of its wording, this ideological choice is worrying for businesses insofar as contractual freedom – which ensures economic efficiency – constitutes the foundation of the free market economy.
2. The ‘consumerization’ of contract law. The rules on unfair terms in contracts, which are strictly limited by European law to relations between traders and consumers, are being extended to all contracting parties. Henceforth, “any clause which creates a significant imbalance between the rights and obligations of the parties to the contract may be voided by the court at the request of the contracting party to whom it is detrimental”. However, the assessment of significant imbalance but may not relate to the definition of the main subject matter of the contract and the adequacy of the price of the service (new Article 1169 of the Civil Code).
3. No harmonization with other areas of law. The Taubira bill contains new rules, particularly relating to unfair terms and resolutory clauses, which will be applicable to all contracts and duplicate the provisions of Article L. 442-6 of the Commercial Code, which pursue the same objectives but with different conditions of implementation, a defined set of legal rules and specific sanctions. The creation of a general law without consideration of the status of the existing specific and often problematic rules will establish two separate regimes under French law for two types of similar clauses.
More widespread legal uncertainty
4. Contracts weakened from the moment of their formation. Whereas the drafters of the Civil Code introduced good faith only at the performance stage of the contract, the Taubira bill requires good faith at its formation (new Article 1103), at the time of the exchange of consent, thus opening the door to all manner of unfounded accusations as to intent in order to determine, after the fact, whether or not the parties have contracted in good or bad faith.in to
5. Generalization of possibility to challenge for abuse of dependence. Taking advantage of a state of vulnerability or weakness (abus de faibesse) when associated with a state of necessity or dependence is regarded as duress and leads to the voiding of the contract if one party abuses that situation in order to unfairly obtain commitments that would not have been agreed had the other party not been in such a situation (new Article 1142 of the Civil Code). Can parties claiming a state of dependence now challenge all the contractual obligations by which they are bound?
6. Abrogation of “cause” and “object” of contracts and obligations to the benefit of “content”. The Taubira bill replaces precise concepts defined by extensive case law by the vague, unclear notion of “content of the contract” (Articles 1161 to 1170 of the new Civil Code) which must, according to the text, be lawful and certain. This will lead to huge problems of implementation.
7. Possibility of challenges to all clauses regarded as unfair even when negotiated and agreed by the parties. The bill provides that clauses creating a significant imbalance between the rights and obligations in the contract (with the exception of the definition of the object of the contract and the adequacy of the price) may be voided by the court. The rules on unfair terms traditionally applicable to B2C relations are thus extended to both B2B and C2C relations. The Commercial Code already provides for this faculty, but Article L. 442-6-I-2 comes into play only in case of subjection of the other party to an imbalanced obligation, which presumably would not be the case if actual negotiations have taken place. The bill on the contrary enables business deals negotiated intensively and point by point to be called into question.
8. Contract challengeable in case of unforeseen change of circumstance. The Taubira bill provides that in the event of change in circumstances that was unforeseeable at the conclusion of the contract and rendering its performance excessively onerous, the parties may request its renegotiation and, if they fail to come to an agreement, they may jointly apply to the court to have the contract amended or unilaterally apply for it to be terminated (new Article 1196).
Diminished appeal of French law
9. Reduction of the appeal and competitiveness of French law in international trade. In the knowledge that the courts can review contracts governed by French law in respect of their intention, declare null and void commitments made by dependent co-contracting parties, void all imbalanced obligations even when negotiated between the parties in good faith and terminate the contract if it is no l0onger profitable for the other party, foreign businesses will likely prefer to have their affairs governed by a law which has more respect for the will of the parties such as English or Swiss law. If the Taubira bill were to be adopted, foreign and French businesses alike would be discouraged from choosing French law for their international contracts, as it would become less efficient and a greater source of legal insecurity at all stages of the contractual relationship.