In our third and last LawFlash about contract law reform, we cover unforeseeability and significant imbalance.
With the entry into force, for contracts entered into after 1 October 2016, of Ordinance No. 2016-131 of 10 February 2016 reforming contract law, the general regime, and rules of evidence, French law has adopted two new mechanisms to protect contractual parties: unforeseeability and significant imbalance in adhesion contracts.
Unforeseeability (new art. 1195 of the Civil Code)
Under the former law, the binding character of contracts prevented a party from applying to the court to seek revision of a contract for major contractual imbalances that occurred during the performance thereof (unforeseeability).
From now on, to avoid unforeseeable imbalances, the legislator has (subject to certain reservations) enshrined the theory of hardship and the possibility for the co-contractor affected by the imbalance to renegotiate the contract or even refer the matter to the court to revise or terminate the contract.
New article 1195 of the Civil Code thus requires three conditions to be met in order to avail oneself of the options offered by the new provision:
- Unforeseeability occurs where there is an “unforeseeable” change in circumstances at the time of signing the contract.
- The unforseeability makes the performance thereof “excessively onerous” for a party.
- The party has not accepted to bear the risk of such excessively onerous performance.
If all conditions are met, the affected party may ask its co-contractor to renegotiate the contract. The party must nevertheless continue to perform the contract during the negotiations.
If the negotiations fail, the parties may agree to rescind the contract or to request that the court adapt it or rescind it. If no agreement is reached within a reasonable time, either party may refer the matter to the court in order for the contract to be revised or terminated.
The parties may agree in advance to set this procedure aside in order to bear the consequences of circumstances that disrupt the contract’s economics. The parties may also adjust their agreement by inserting therein negotiation and/or price variation clauses.
Significant Imbalance (new art. 1171 of the Civil Code)
New article 1171 of the Civil Code provides that the clauses that create a significant imbalance between the parties’ rights and obligations in an adhesion contract are deemed unwritten.
As a reminder, adhesion contracts (defined in article 1110 of the said code) are agreements in which the conditions are not negotiated between the parties.
This new provision strengthens the relevance of the whole mechanism in terms of balancing the parties’ obligations:
- Article L. 212-1 of the Consumption Code, created by order No. 2016-301 of 14 March 2016, considers clauses unwritten that create a significant imbalance in a contract comprising a nonprofessional part.
- Article L. 442-6 I 2° of the Commercial Code includes, since 2008, a mechanism that aims to penalize, in terms of liability, clauses that create a significant imbalance in a contract between professionals.
The criteria for assessing the imbalance are not defined in new article 1171, which only indicates that this assessment may relate neither to the principal purpose of the contract nor to the adequacy of the price with respect to the service.