New French contract law provisions are now in force and apply to any contracts concluded after 1 October 2016.
In previous related client alerts, we outlined this legal revolution in France and described the new recognition of hardship under French contract law.
This client alert focuses on the new rules governing pre-contractual negotiations, which draw inspiration from notions of good faith. The new provisions in part codify existing case law, and in part effect a departure from the previous law.
When the French civil code was first adopted in 1804, it did not specifically address pre-contractual negotiations. One explanation often given is that in the late seventeenth century, negotiation periods were generally short, so not worthy of legislative attention.
In due course, the subject matter gained the attention of French courts adjudicating claims relating to the breakdown of lengthy negotiations. The legislative gap was filled by the courts. Certain solutions developed by the courts have now been codified at articles 1112 et seq of the new French civil code. The French reform also introduces two general duties binding on the negotiating parties.
(a) Freedom to negotiate - subject to good faith
Article 1112 provides that parties have complete freedom to initiate, conduct and break off negotiations. However, this freedom is restricted by a specific requirement of good faith contained in article 1112 itself. Prior to the reform, the French civil code only made reference to the requirement of good faith in the performance of contracts.
This requirement of good faith for pre-contractual negotiations is mandatory. Parties cannot contract out of it. However, the exact meaning of good faith in this context is likely to be a slippery concept until the courts have had the opportunity to decide some cases.
(b) Failure of negotiations - no loss of chance
While parties are free to break off negotiations, they may be liable if they wrongfully break them off. It is not the breaking off that is sanctioned here but the manner in which it is undertaken, examined through the prism of good faith.
However, adopting the approach previously developed by the French Cassation Court, article 1112 circumscribes recoverable losses in case of the wrongful breakdown of negotiations. Article 1112 specifically provides that in any assessment of damages, there can be no compensation for the loss of advantages expected from the contemplated contract that did not eventuate....