This is our fourth client alert on the new French contract law provisions applicable to French law governed contracts concluded after 1 October 2016.
In our previous client alerts, we outlined this legal revolution in France and described the new recognition of hardship under French contract law as well as the new codified French regime applicable to pre-contractual negotiations.
This client alert focuses on the new provisions of the French civil code that set out to protect the weaker contracting party or parties to any given contractual arrangement. Such protection was one of the express objectives of the reform.
In 2015, the French Parliament listed 13 objectives for the reform of French contract law. The second objective includes the notion of unfair terms and contemplates sanctions against a party who takes advantage of a weaker contractual counterparty. To meet this objective, the legislator introduced three notions which we address in turn below.
1) Standard form contract and significant imbalance
Article 1110 of the new French civil code introduces a statutory definition of a standard form contract (contrat d'adhésion) for the first time. A standard form contract is one where the "general conditions, removed from negotiations, are determined in advance by one of the parties".
Where a contract is found to be a standard form contract, any clause creating a "significant imbalance" (déséquilibre significatif) between the parties may be considered unfair and deemed to be of no effect by the courts (article 1171). However, the core purpose of the contract as well as the adequacy of the price for the contractual benefit conferred on the paying party are both excluded from sanction under article 1171.
In addition, pursuant to article 1190, a standard form contract must be construed in favour of the party who did not determine the terms of the contract.
2) Abuse of a position of dependence
Under French law, consent may be vitiated in case of duress (violence). Article 1143 of the new civil code supplements the definition of duress. It provides that "there is also duress where a party, who abuses the position of dependence in which its counterparty finds itself, obtains from that counterparty an undertaking that the latter would not have agreed to if such constraint had not existed and takes a manifestly excessive advantage [of the situation]".
Hence, where the weaker party finds itself in a position of dependence (état de dépendance) with...