Business Contracts

Is it possible for a party to challenge a price-setting clause, or even the price itself, on the grounds that it creates a significant imbalance between the rights and obligations of the parties, in other words, on the grounds that it is unfair? This is possible in relations between businesses, but not between businesses and consumers.
A number of provisions penalize unfair terms.
Article L. 212-1 …

Significant imbalance

Is it possible for a party to challenge a price-setting clause, or even the price itself, on the grounds that it creates a significant imbalance between the rights and obligations of the parties, in other words, on the grounds that it is unfair? This is possible in relations between businesses, but not between businesses and consumers.

A number of provisions penalize unfair terms.

Article L. 212-1 of the Consumer Code states that “in agreements between professionals and consumers, unfair terms are those which have the object or effect of creating, to the detriment of the consumer, a significant imbalance between the rights and obligations of the parties to the agreement”. However, this provision expressly excludes checks on whether the price or remuneration is appropriate for the goods sold. Consequently, to guarantee the contractual freedom of the parties, the court cannot rule on the legitimacy or proportionality of the agreed remuneration.

The need to combat unfair terms is one of the major innovations introduced into the Civil Code by Ordinance No 2016-131. New Article 1171 thus deems unwritten “any non-negotiable clause, determined in advance by one of the parties, which creates a significant imbalance between the rights and obligations of the parties to the agreement, in all standard-form contracts”. However, like Article L. 212-1 of the Consumer Code, it specifies that “the assessment of the significant imbalance does not concern either the main subject matter of the agreement or the adequacy of the price to the service”. The price agreed between the parties cannot therefore be called into question on the basis of this provision, whose scope is limited to standard-form contracts.

Significant imbalance in contracts between professionals (i.e. businesses) is governed by the new Article L. 442-1, I, 2° of the Commercial Code. Initially, former Article L. 442-6, I, 2° of the Commercial Code, now Article L. 442-1, I, 2°, covered any relationship of dependence  or any imbalance between trading partners that gave rise to abuse. The reference to a situation of dependence, which was too difficult to prove, was abandoned, and a real control of unfair terms between professionals was established. This provision underwent a final evolution with the removal of the reference to the notion of commercial partnership following the entry into force of Ordinance No 2019-359 of 24 April 2019 .

Article L. 442-1, I, 2° provides that the act of subjecting or attempting to subject the co-contracting party to obligations creating a significant imbalance in the rights and obligations of the parties engages the liability of its perpetrator and obliges him to repair the harm caused. The text specifies that it falls within the “framework of commercial negotiation, the conclusion or performance of an agreement” and applies “to any person engaged in production, distribution or service activities”. Revisiting the scope ratione materiae of this provision, the Paris Court of Appeal  ruled that the provisions of Article L. 442-1, I, 2° (formerly Art. L. 442-6, I, 2°) of the Commercial Code, which apply only to production, distribution or service activities, cannot be invoked to assess the methods used to determine the sale price of a business. The Court of Cassation has endorsed this position, stating that the sale price of a business, which is the result of unfettered negotiation between the parties, cannot be assessed in the light of the provisions relating to significant imbalance .

However, unlike the other two provisions governing unfair terms mentioned above, Article L.442-I, 2° does not rule out the possibility that a significant imbalance may result from the price being inadequate for the goods sold. This is precisely what the Court of Cassation ruled in its landmark decision of 25 January 2017 , providing a number of important clarifications. Firstly, the principle of free negotiability instituted by the Law on the Modernization of the Economy does not mean that price reductions obtained by a distributor can be devoid of consideration or justification. For example, the granting of price reductions in the form of end-of-year rebates by a distributor who provides no consideration whatsoever, calculated on sales far in excess of that to which he has already committed himself, and paid in instalments before he has settled the price of the goods, reflects the existence of a significant imbalance between the rights and obligations of the parties. Furthermore, when the imbalance observed is not due to the level of prices granted to the distributor, but to the mechanism for implementing the rebate, the court is not required to evaluate the fair price and assess whether the price obtained deviates significantly from it. Lastly, suppliers may be subject to imbalanced obligations as a result of the fact that the rebate obtained does not appear in their general terms and conditions of sale, but in an appendix to the framework agreements pre-drafted by the distributor and signed by all, without any effective negotiation, when there is a contradiction between certain provisions and the only distinctive element, the rebate rate, is the result not of negotiation, but of its prior determination by the distributor.

For its part, the Constitutional Council considers that the provisions of Article L. 442-1, I, 2° of the Commercial Code, as interpreted by the Court of Cassation, which authorize judicial review of the price if it does not result from open negotiation and characterizes a significant imbalance in the obligations of the commercial partners, are contrary neither to the principle that offenses and penalties must be defined by law, nor to contractual and entrepreneurial freedoms .

It penalized “abusing the relationship of dependence in which he holds a partner or his purchasing or selling power by subjecting him to unjustified commercial terms or obligations (...)”.

Recasting Title IV of Book IV of the Commercial Code relating to transparency, restrictive competition practices and other prohibited practices.

CA Paris, 10 April 2019, LawLex201900000537JBJ.

Cass. com. 16 March 2022, LawLex202200001723JBJ.

Cass. com. 25 January 2017, LawLex201700000176JB.

Cons. Constit., 30 November 2018, LawLex201800001830JBJ.

Business Contracts

26. Significant imbalance

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Les décisions de justice citées dans ce paragraphe :

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26. Significant imbalance

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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