The long-awaited French contract law reform just came into force on October 1st, 2016, pursuant to an Ordinance dated February 11, 2016. This reform is one of the most important milestones in the elaboration of French contract law rules since the birth of the Napoleonian Code in 1804…
The reform aims at improving the attractiveness of French contract law by means of simplification, modernization and greater accessibility and, most importantly, reinforcement of legal security.
Delsol Avocats would like to introduce you to the most important changes of the reform impacting our M&A practice.
Negotiations in good faith and duty to inform
The reform codifies the principle by which negotiations are to be conducted in good faith at all stages, both during the precontractual period and during the final negotiations.
In particular, under the reformed Civil code, a seller will be required during negotiations to share with the potential buyer any information that the seller knows concerning the subject matter of the contract:
- if, and to the extent such information would likely influence the buyer’s decision to conclude the contract, and
- if the buyer “trusts” the seller, or the buyer cannot legitimately know the relevant information.
The buyer will also need to act in good faith, in particular by informing the seller of any issue discovered by the buyer during the due diligence and likely to trigger the representations & warranties.
Building on existing case law, the reform codifies the concept that where a party breaches a preemptive right or a right of first refusal, the defaulting party will be held liable.
In particular, where in breach of the preferential right a contract has been concluded with a third party who knows of its existence, the beneficiary of the preferential right may sue to nullify the transaction, or petition the court to substitute him for the third party who unduly benefited in the contract that was concluded.
To facilitate the burden of proof, the reform creates an interrogatory action allowing a third party to ask a potential beneficiary through a written request to confirm whether a preferential right exists and whether the beneficiary intends to use it.
Call and Put Options
To put an end to the long uncertainty governing the legal remedies in the event of a breach of put or call options, the reform codifies the possibility for the beneficiary of such an option to enforce it. Accordingly, the withdrawal of the offer (in breach of such option) during the period granted to the beneficiary to exercise its option will not prevent the legitimate beneficiary from exercising its rights and concluding the rightful contract.
Hardship doctrine (“théorie de l’imprévision”)
This is one of the most noticeable changes of the reform. The reform makes it possible for a party to renegotiate an existing agreement in the context of unforeseeable changes (except if this right is expressly waived).
Thereby aligning French law with most laws of the European Union member states, the reform creates a right to renegotiate an agreement provided the following three cumulative conditions are fulfilled:
- the change in economic circumstances was “unforeseeable”,
- the change should render completion of the agreement “excessively onerous” for a party, and
- such party suffering this change of circumstances must not have accepted the risk of such a change of circumstances.
Please do not hesitate to contact the teams at Delsol Avocats should you have any queries on the above items or any aspects of this historical reform which will undoubtfuly have an impact in the way transactions are carried out in France.