Since the reform of the LME law of 2 August 2008, under Article L 442-6, I, 2° traders are prohibited from subjecting or attempting to subject a trading partner to obligations that create a significant imbalance in the rights and obligations of the parties. As a counterbalance to the freedom of negotiation granted to economic operators by the repeal of the per se prohibition of discriminatory practices and the relaxation of the prohibition of below cost reselling, the legislature has strengthened the control of abuses particularly through the sanctioning of unfair terms between traders.

Five years on, the provision on significant imbalance has clearly still not found its equilibrium. Even though it is only rarely applied to business relations under the general law, the authorities frequently use it when taking measures against the big retail groups, which do admittedly impose rather draconian terms on their suppliers. An analysis of all those actions shows that the rules on unfair terms always give rise to problems of implementation, which have not as yet been definitively resolved, and to wide differences of interpretation depending on which court is hearing the case. The fact that there has been no ruling settling the matter by the Court of Cassation has generated a spate of conflicting decisions in the case law in respect of the principal issues under debate. General Counsel and their lawyers need to know what these issues are if they intend to rely on the law to challenge a contractual imbalance, or, on the other hand, to defeat an action based on significant imbalance.

1.         Can an action for significant imbalance apply to ongoing contracts?

This is, in a number of cases, the first question facing parties in situations where they are tied by an old contract concluded prior to the enactment of the LME law of 2 August 2008. The plaintiff, wishing the provision to be applied to ongoing contracts, will assert that the legislation in question is a public policy provision and must be applied in respect of injury occurring after the entry into force of the law. His adversary on the other hand will rely on Article 2 of the Civil Code, which states that “Legislation provides only for the future; it has no retrospective operation” and on the fact that, according to the case law, “the effects of contracts concluded prior to the new law, even though they continue after that law [has been implemented], are still governed by the law in force when they were concluded” (Court of Cassation, civil division, 3 July 1919, No 77-552; Court of Cassation, civil division, 30 Jan. 2001, No 98-15158).

The case law reiterates that the public policy aspect of the new law does not justify its immediate application to the future effects of current contracts and this has been applied by a number of courts with regard to Article L. 442-6, I, 2° of the Commercial Code (CA Paris, September 26, 2013, RG 11/09146;  CA Paris, February 23, 2012, RG 08/15137; CA Nancy, 31 May 2012, RG 09/01110; Commercial Court, Paris, 9 Feb 2012, RG 2010024988; CEPC (Commission for the Examination  of Commercial Practices), Opinion No 13/03 of 10 April 2013). It will be for the Court of Cassation to come down on the side of one party or the other as both have arguments in support of their claim.

2.         Should each clause be analyzed individually or is the overall balance of the contract more important?

Here too, the Court of Cassation has not yet issued a ruling on the issue.

A large number of decisions handed down in application of Article L. 442-6, I, 2° of the Commercial Code are based on a clause by clause analysis and more precisely on the criterion of the lack of reciprocity of rights and obligations of the parties. But some courts analyze the contract in its entirety and evaluate whether certain clauses are not likely to compensate for the imbalance resulting from other clauses (CA Paris, 4 July 2013, RG 12-07651, LawLex201300001139 JBJ).

One approach, which brings together two trends, considers that the balance must in principle be assessed in the light of the contract as a whole but that a truly unbalanced clause can, in itself, result in liability under the provision (CA Paris, 11 September 2013, LawLex201300001296JBJ).

3.         Must the concept of imbalance be assessed in the light of the consumer law   criteria?

The Conseil Constitutionnel (Constitutional Council), when called upon to rule on an application for a priority preliminary ruling on the issue of constitutionality relating to the measure appeared to infer that it must (Constitutional Council, 13 January 2011, LawLex201100003908JBJ). A ruling of the Paris Commercial Court clearly chooses this approach (Commercial Court Paris, 24 September 2013, LawLex201300001405JBJ). However, others will argue that, on the contrary, Article L. 442-6, I, 2° constitutes an autonomous case of liability which cannot be assimilated with or limited to the concept prevailing under consumer law.

4.         Can the determination of the selling price be controlled by the court on the basis of significant imbalance?

If we accept that the concept of significant imbalance must be assessed with regard to the consumer law criteria, the courts should not have the power to make an assessment of the adequacy of price or remuneration for the service rendered, insofar as this is prohibited by paragraph 2 of Article L. 132-1 of the Consumer Code. However, the commercial courts have nevertheless analyzed price adjustments clauses under Article L. 442-6, I, 2° (Commercial Court, Lille, 7 September 2011, No 11-17911, LawLex201300001296JBJ) and the Paris Court of Appeal has accepted the principle while at the same time ruling out the possibility in respect of the case before it (CA Paris, 23 May 2013, RG 12-01166, LawLex20130000862 JBJ).

5.         Is a finding of significant imbalance enough for the rule to apply or must there also be proof of an element of constraint?

This question has also given rise to debate. Some courts have held that the review of the significant imbalance is subject both to the existence of obligations creating an imbalance in the contractual rights and obligations and by the existence of an element of coercion (Commercial Court, Paris, 24 September 2013, LawLex 201300001405JBJ). Others have argued that subjecting or attempting to subject a trading partner to obligations creating a significant imbalance does not result as much from the exercise of overwhelming pressure or coercion as from the existence of an uneven balance of economic power between the parties, which gives rise to the dependence of one of them (CA Paris, 18 September 2013, LawLex201300001527 JBJ).

Given the state of affairs, it is fairly clear that the current law is not settled and each of these questions will no doubt give rise to contradictory debates until the Court of Cassation has declared itself on the question, and probably also afterwards.

This situation is inherent in the very general nature of the legislation which leaves room for interpretation and debate, whereas other law systems having established a system of rules for unfair terms between traders, such as German law, have opted for a very precise categorization of the conditions of significant imbalance.