You are here

A new era for French contract law?

Rémy Blain and Mathew Rea consider whether French contract law could become the preferred choice to govern international business contracts

13 February 2017

Add comment

Unnoticed by many in the UK, French contract law has recently undergone a ‘relaunch’, with the first major updating of the codes that form its basis since their inception in Napoleonic times. Could the new codes, introduced in October 2016, help enhance French law’s reputation internationally and enable it to challenge the pre-eminent position of English contract law around the world?

The key features of the French approach to contract law are:

• The ability to interpret contacts according to the common intentions of the parties, rather than relying on only a literal translation of the terms;

• The explicit duty of good faith on all parties in performing and negotiating contracts;

• The concept of ‘unilateral promises’ enabling agreements reached in advance of a formal signing to be enforced, which prevents ‘gazumping’; and

• The concept of ‘hardship’ by which parties can be obliged to renegotiate their contracts if unforeseen circumstances occur.

For many English lawyers, these concepts are quite alien and introduce a level of uncertainty about the outcome of any subsequent court case that challenges the effectiveness of having a clear, well-thought-through contract in the first place. They argue that the role of legal counsel is to foresee potential issues and draft contracts accordingly, and that judges are not well placed retrospectively to deduce the intentions of the various parties.

However, the advocates of French contract law argue that there are numerous advantages to the ‘Gallic approach’, and that it produces results that are both fairer and more aligned with a common-sense approach to business than English law has historically achieved. Besides, they say, because they do not need to account for every possibility, French contracts are shorter, simpler, and much more easily digested than English contracts, and that is something most business people would warmly welcome.

They point to cases such as Arnold v Britton and others [2015] UKSC 36, in which a group of unsuspecting renters of holiday chalets on a plot in South Wales signed leases in the 1970s that required an annual service charge of £90 plus 10 per cent compounded every year for maintenance costs. What they failed to realise was that, by last year, this charge had built up to hundreds of thousands of pounds, and £550,000 per year by the end of the lease. Surely this wasn’t what was intended at the time the lease was signed? But English law’s strict interpretation of the terms meant that the challenge was not upheld by the courts, despite the fact this judgment flies in the face of what most would regard as common sense.

French law advocates also claim that the codes do not encourage courts to alter routinely the terms that have been agreed. They can only do so in specific circumstances and only if it can be shown that the terms of the original contract are no longer appropriate, or were reached as a result of unreasonable behaviour by one of the parties. Indeed, they say that the codes specifically state that: ‘Clear and unambiguous terms are not subject to interpretation as doing so risks their distortion’.

However, despite the strictness of its application – or perhaps because of it – English contract law continues to be considered the preferred choice for the majority of international businesses. A study by Gilles Cuniberti, professor of private international law at the University of Luxembourg, demonstrated that the laws of five jurisdictions dominated the international market for contracts – English law, Swiss law, US state laws, French law, and German law – and English and Swiss laws are chosen three times more often than the other three. Another recent survey in the Middle East, for example, found the law of England and Wales had been used in 57 per cent of M&A deals and 48 per cent of joint venture contracts. The report concluded that English law was attractive because it provides certainty in the application, interpretation, and consequences of breaching the terms of a contract. It also puts the lawyers in the driving seat, whereas French law gives the judge a stronger role in disputes.

Faced by such a dominant position in the minds of international businesses, combined with the fact that so many of those advising executives continue to prefer the certainty of the English legal framework, it is hard to see how French law could transform itself into the international legal framework of choice. However, with Brexit on the horizon and the potential for a more assertive European position on the global stage, the London legal community should certainly not rest on its laurels. Indeed, those considering how English law is interpreted and applied might want to look at the innovations within the new French codes and consider if there are elements that they can learn from.

 

Mathew Rea is co-head of the global international arbitration team and a partner in the commercial litigation client service group at the London office of Bryan Cave. Rémy Blain is managing partner in the Paris office of the firm.

@BryanCaveLLP

www.bryancave.com

Categorised in:

EU & International Litigation Company, Consumer, and Contract International