November 30, 2011

The problem of precontractual liability in Europe

Today, I want to speak about the different approach of precontractual liability in Europe and the consequence in cross-borders disputes.

In the different law systems, there are 2 viewpoints concerning the possible liability of one party breaking off precontractual negotiations:

-The negotiations are purely preparatory and cannot have a legal significance.

-The negotiations are a collaboration between the parties who are protected by the law.

  • In the common law jurisdictions, there is a reluctance to attribute legal significance to the precontractual phase.

There can be no duty to negotiate in good faith because, by entering into negotiation, one party has not given up the freedom to change his mind, he is entitled to pursue his own interest, so long as he avoids making misrepresentations.

see case Wilford v. Miles [1992] 2 AC,128,138 (Lord Ackner)

Thus English law doesn't reject all liability during the negotiations for example when the defendent makes a false statement during the course of the negotiations, which the claimant believes and act on.

  • In Germany, the beginning of the negotiations have a formal legal significance. A special relationship (Sonderrechtsverhältnis) is created between the negotiating parties by virtue of the law (gesetzliches Schuldverhältnis) imposing on both parties duties of protection and loyalty (Schutzpflichten). A party liable on the ground of culpa in contrahendo in paragraph 311 BGB (fault in conclusion of a contract) has to make up for the aggrieved party's reliance interest (Vertrauenschaden), but it is not sufficient for a party to say that he relied on the future contract to obtain a remedy where negotiations are broken off.


  • In France, the precontractual negotiations between two parties (les pourparlers) are also following the principle of freedom of contract and each party is free to break off the negotiations. But this rupture cannot be the consequence of a fault or an abuse of one of the parties, otherwhise he will engage his liability in tort. (Article 1382 and 1383 of the french civil Code)

→The claimant must prove a fault, a prejudice and a causality link.

Since the "Manoukian" decision of the Cour de cassation of the 26 November 2003, it is not possible for a party to ask for damages for the loss of the chance to conclude a contract. Also, in an other decision of the 14 September 2005 (3ème chambre civile), the Court held that the obligation of good faith suppose the existence of a contractual relationship.

We can see that the french, english and german legal systems recognise, in effect, that there is a balance to be struck in the analysis of the precontractual phase but there is a difficulty to determine the form of liability in the precontractual phase because in most of the law systems, there's a distinction between the regime of contract and tort.

For example, in Germany, the special nature of the precontractual phase merits special treatment, "a tertium quid" between contract and tort whereas in France, the rules of tort must be applied without any significant amendment.

The European Court of Justice has held that for the purpose of the Brussels Convention of the 27 September 1969 on Jurisdiction and the Enforcement of Hudgements in civil and Commercial matters (OJ 1978 L 304 p.36), a claim for damages for breach of the precontractual duty to negotiate in good faith is a claim in tort (article 5.3) rather than a claim in contract (article 5.1). This distinction is also held in the Rome I (EC 593/2008, recital 10) and Rome II (EC 864/2007, recital 30 and article 2.1, 12.1) Regulations.

To conclude, I will add that the Draft Common Frame of Reference contains specific provisions concerning precontractual liability (II-3:301: Negotiations contrary to good faith and fair dealing ) and specifies that most of the questions would be determined by a general duty of precontractual good faith, in the same way as in most of the european legal systems.


October 22, 2011

Rollover contracts in France

Follow-up to Rollover contracts in the UK and in the EU legislation from Florent's blog

In the third Title of the first book of the french consumer code,chapter 6, called "Reconduction des contrats" (renewal of contracts) there is an article L136-1 ,created by the "Châtel" Bill of the 28th january 2005, which specifies that a provider must inform in a written form the consumer, the soonest 3 months and the latest 1 month before the end of the period autorising the reject of the renewal that he has the possibility not to renew the contract he signed with a tacit renewal clause.

The paragraph 2 specify that if this obligation of information has not been adressed to the consumer in accordance of the provisions given in the first paragraph, the consumer can terminate the contract free of charge at any moment from the date of the renewal.

The third paragraph add that this article doesn't interfere with other provisions which legally submit other contracts to particular rules concerning the information of the consumer.

A new Bill of the 30 December 2006 added that those 3 paragraphs are not relevant for operators of drinking water services and sanitation.

A last Bill of the 3 January 2008 completed that those paragraphs are relevant for consumers and non-professionals.

The"Châtel" Bill of the 28th january 2005 tending to reinforce the trust and the protection of the consumerhas been voted in order to facilitate the termination of tacit renewal contracts in all areas and especially for mobile phones contract. This vote appeared to be necessary after the french Consumer rights group "UFC-que choisir" showed that it will make the market more competitive. Indeed there is a monopoly of the 3 biggest telecoms providers of the country who represents 75% of the sector and they already have been accused of raising barriers to effective competition. In 2005, the Competition Council inflicted a penalty record of 534 millions euros for having an agreement between each other to distort competiton by exchanging confidential informations concerning the number of new subscriptions and terminations.

Today, in France, the biggest issue is to avoid the abuses of the operators trying to renew a contract by offering an application to the consumer in his package without telling him that this application will renew his contract and that he has only 7 days to withdraw his acceptance.


October 19, 2011

Rollover contracts in the UK and in the EU legislation

Writing about web page http://www.ft.com/cms/s/0/3ebd2fc0-de12-11e0-a115-00144feabdc0.html#axzz1bDgMn0B2

In the United Kingdom, the Unfair Terms in Consumer Contracts Regulations 1999 in a schedule 2, is giving an indicative and non-exhaustive list of terms which may be regarded as unfair, for example:

"automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express his desire not to extend the contract is unreasonably early."

http://www.legislation.gov.uk/uksi/1999/2083/regulation/5/made

Ofcom (Office of Communications), which is the government-approved regulatory authority for the broadcasting and telecommunications industries, banned rollover contracts in the telecoms market. But it will take a while for the ban to be implemented in full. Providers will still be able to switch people into unwanted contracts until December 31, 2012.

An article of the Financial Times of the 14th September 2011 called "Ofcom to free BT clients from rollover deals" revealed that, according to Ofcom, about a sixth of homeowners in the UK are locked into rollover contracts. Ed Richards, Ofcom chief executive said:"Ofcom's evidence shows that automatically renewable contracts raise barriers to effective competition by locking customers into long terms deals with little additional benefit."

Ofgem, which regulates gas and electricity providers, initially proposed a ban on rollover contracts, but this has been put on hold and will form part of a wider package of measures that will be put out for consultation this autumn.

After the EU legislation, uSwitch.com,the price comparison website, says that there was a jump in the cost of the cheapest deals after the new rules which means that the change has brought more flexibility for mobile users.

In May 2011, the European Union legislation banned the sale of 36-month mobile contracts and limited the maximum term to 24 month.

A directive of the 25 November 2009 amends two directives of 2002 on that topic and amend also a regulation on cooperation between national authorities responsible for the enforcement of consumer protections laws. (see http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:337:0011:0036:EN:PDF)

According to the EU legislation of May 2011, it is said that providers must also offer 12-month deals for customers who do not want to be tied in.


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