French law, as a matter of principle, rejects the notion of unforeseen circumstances in contracts. Indeed, since the “Craponne Canal” case, judges have held that:

“Considering Article 1134 of the Civil Code; 

Given that the provision of this article is merely the reproduction of the old principles constantly followed in matters of contractual obligations, the fact that the contracts whose execution is the subject of the dispute were entered into before the promulgation of the Civil Code does not, in this case, prevent the application of the said article; 

Given that the rule it enshrines is general, absolute, and governs contracts whose execution extends over successive periods as well as those of any other nature; 

That, in no case, is it the role of the courts, however equitable their decision may seem, to consider time and circumstances to modify the parties’ agreements and substitute new clauses for those freely accepted by the contracting parties.”

In short, the judge cannot interfere with the contract, even in equity, even in the event of a change in circumstances. This is the principle that the contract is the law of the parties (“pacta sunt servanda”).

While some criticized French law for its lack of adaptability, others hailed it as a victory for individual freedom and contractual freedom. Thus, historically and in principle, the judge cannot interfere with the provisions agreed upon by the parties.

But what can be done when a contract is meant to last over time and is therefore confronted with significantly different situations? The COVID-19 pandemic and the war in Ukraine have substantially altered the conditions of contract performance, often causing imbalances that deprive contracts of their profitability.

Several solutions are available to contracting parties :

– Contractual solutions, first of all,

– Legal solutions.

Regarding contractual solutions, the parties can include various clauses in their contracts:

– An indexation clause: This is common in rental contracts (in particular). The parties must agree on an index related to the activity (for example, the commercial rent index for commercial leases or the consumer price index excluding tobacco – all households for child support). However, an indexation clause may not, over the long term, reflect market price changes. Some mechanisms exist to address this difficulty, particularly in commercial leases, where rent is uncapped after three renewals of three years (with the risk of increased rent leading to economic imbalance for the tenant).

– A hardship clause : This clause allows for a contract modification in the event of new circumstances. This type of clause has proven useful in the context of inflation in raw materials following the COVID-19 pandemic and the war in Ukraine. Thus, in the event of inflation, the contract may provide for automatic price increases or require the parties to renegotiate. The nature of the events leading to renegotiation, the notion of imbalance, the procedures for requesting renegotiation, the effects of the clause, and the consequences of failed negotiations should be clearly defined. International contracts often refer to the ICC hardship clause.

– A price adjustment clause: The parties can agree that the price will change based on circumstances. For example, a percentage of remuneration may increase or decrease depending on the number of sales (especially for a commercial agent or an author whose percentage may increase with the number of works sold, etc.). This clause is generally used to align the creditor’s interest with a more favorable environment than initially foreseen.

Regarding legal solutions, French law offers the following:

– Force majeure: Situations of unforeseen circumstances described in a hardship clause should not be confused with “force majeure” cases, which are also generally included in contracts.

Force majeure is characterized by an unforeseeable, irresistible, and external event (i.e., independent of the parties). Force majeure events may include hurricanes, national strikes, pandemics, etc. Force majeure does not replace the hardship clause, which instead intervenes in the gaps left by force majeure. Thus, when the concept of force majeure does not apply, invoking the hardship clause may allow for renegotiation of the contract.

The effect of force majeure is to terminate the contract. The parties can determine the consequences of a potential force majeure event. Furthermore, a force majeure event has the advantage of preventing the obstructed co-contractor from incurring contractual liability.

– The theory of unforeseen circumstances since the reform of October 10, 2016: The theory of unforeseen circumstances was initially used in administrative law for public contracts. Administrative judges, in the name of the principle of continuity of public service, recognized the existence of new circumstances following World War I that justified the renegotiation of the contract. Now, Article 1195 of the Civil Code extends the theory of unforeseen circumstances to civil contracts. According to this theory, an “unforeseeable change in circumstances at the time of contract conclusion” that makes performance “excessively onerous” for one party would justify renegotiation.

Article 1195 provides:

“If an unforeseeable change in circumstances at the time of contract conclusion renders its performance excessively onerous for a party who had not agreed to bear the risk, that party may request renegotiation of the contract from its co-contractor. They continue to perform their obligations during the renegotiation. 

In case of refusal or failure of renegotiation, the parties may agree to terminate the contract, on the date and terms they determine, or jointly request the judge to adapt it. If no agreement is reached within a reasonable time, the judge may, at the request of one party, revise the contract or terminate it, on the date and terms he or she determines.”

The change is fundamental: the French judge is finally allowed to adapt the contract. Even if this occurs only by default when the parties fail to reach an agreement, they can nevertheless refer the matter to the judge, who will determine the new contractual balance. This represents a significant breach of the principle of individual freedom and contractual freedom in the name of the theory of unforeseen circumstances.

– The disappearance of the contract’s cause: In a decision on June 29, 2010, the Court of Cassation held that the change in economic circumstances, particularly the cost of raw materials and metals, had the effect of upsetting the overall economy of the contract, thus depriving it of its cause (i.e., its interest for one of the parties). It is uncertain whether this solution will endure, as the notion of cause was replaced during the 2016 reform by the concept of “lawful and certain content.” However, judges could rely on the provisions of Article 1186 of the Civil Code, which states that “a validly formed contract becomes void if one of its essential elements disappears.” In practice, if economic circumstances upset a contract, it is conceivable that courts could rule that the contract becomes void as it loses its substance.

– In the case of author’s contracts: Article L. 131-5 of the Intellectual Property Code provides that the author is entitled to additional remuneration when the initial proportional remuneration proves to be excessively low compared to the total revenue subsequently derived from the exploitation by the assignee.

Civil contract law thus offers flexibility to the parties, allowing them to contractually plan for circumstances in which the contract may evolve or be renegotiated. It is generally preferable to include a clause in the contract allowing for its adaptation in the event of new circumstances. Indeed, as the contract is the law of the parties, a clause providing for new performance conditions will apply immediately when the conditions are met. On the other hand, referring the matter to the judge based on the aforementioned legal provisions presents the disadvantage of uncertainty (there is always judicial risk) as well as delays (it takes almost a year from filing to the final judgment). A well-drafted contract is often the best ally of the litigant.

For any questions regarding data protection law, the firm is at your disposal.