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Contract Law Fundamentals How the Position Differs Across Europe

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Contract law fundamentals How the position differs across Europe Introduction Welcome to our overview of contract law fundamentals. Key contacts We hope you find this guide helpful. The aim is to explore a number of UK important contractual issues under English law and compare the position in Victoria Gwynedd-Jones Knowledge Lawyer Director France, Germany and the Netherlands. T +44 117 917 4440 [email protected] There is an important distinction under English law between a warranty and a representation – but what is the position in other European territories? Does France Alexandre Glatz the same distinction apply under German law, with the same consequences for Partner remedies? Is a duty of good faith implied into commercial contracts in France T +33 1 84 8 24576 and the Netherlands – and, if so, does this duty apply during the negotiation [email protected] period? In this interactive document, we explore these issues and more. Isabelle do Rego Associate If you have any questions, please feel free to contact the team of specialists in T +33 1 84 8 24546 the jurisdictions listed. [email protected] Germany Felix Hilgert Counsel, Maître en Droit T +49 221 5108 4160 [email protected] The Netherlands Sophie den Held Associate T +31 20 702 8932 [email protected] UK France Germany The Netherlands Is a duty of good faith implied into the performance There is no general duty of good There is an explicit duty of good A duty of good faith is implied into all Good faith forms a general principle of commercial contracts? faith implied into all commercial faith in all commercial contracts by contracts as a matter of statutory law. that applies to all types of legal contracts. virtue of article 1104 of the Civil Code, relationships and contracts, even to and this duty applies to all contracts the pre-contractual and negotiation But a duty of good faith will be of any nature which are subject to stage. implied into relational contracts. French law. These are long term contracts A party to a contract cannot enforce where the parties are committed to The duty of good faith applies to a contractual obligation or right collaborating with each other and all stages of a contract’s life from if it would be considered unfair or where they put trust and confidence negotiation to execution and unreasonable to do so under the in each other such as JVs, franchise performance. This duty is part of circumstances. agreements, and long term a public order which means that distribution agreements – there is the it cannot be waived by parties potential for other agreements to be contractually. deemed “relational”. Contracting parties are presumed to be acting in good faith. The burden of proof in relation to breach of the duty of good faith lies with the claimant. UK France Germany The Netherlands Good faith does not simply mean No standard definition of good faith Acting in good faith means dealing The meaning of good faith is aligned “honesty”. It means refraining from has been provided by statute or case in a way that would be ethically with the principles of reasonableness conduct which would be regarded law. If we were to attempt a definition acceptable to reasonable and fair and fairness, so a party must act What does “good faith” mean? as commercially unacceptable by it would be “the duty to act as your people and takes into account the reasonably and fairly towards its reasonable and honest people. counterparty can legitimately and interests of the counterparty. counterparty. reasonably expect you to act”. Transparency, co-operation, trust Whether or not certain conduct This applies during the negotiation and confidence are implicit. In practice, the notion of good faith is breaches the duty of good faith will period too, which means that a multifaceted and is determined on a be determined on a case by case party which walks away from a case by case basis by the courts. basis. There is an abundance of case transaction with a bidder at an law on the subject. advanced stage of negotiations The duty of good faith covers a (perhaps being aware much earlier wide range of obligations that Depending on the circumstances, it in the tender process that it did not vary depending on the stage of a can, for example, be considered bad intend to proceed with that bidder) contract’s life such as an obligation faith to abuse bargaining power, could be held liable for expenses to co-operate, to act loyally, to ensure to mislead in negotiations, to fail to incurred by the bidder in relation confidentiality, and to disclose meet expectations one has created to the negotiation, as a result of the information. for oneself, or to exercise a right party failing to act in good faith. In abusively. exceptional circumstances, a party Some concepts originally based on may also be held liable for loss of the general duty of good faith have profits of its potential counterparty also been codified, such as a right to (though, in practice, compensation require adjustments, or termination, for breaking off negotiations is very in the event of a fundamental rarely awarded by Dutch courts). change in circumstances for which Dutch law gives a negative neither party is responsible. understanding of good faith: a person has not acted in good faith, if he knew, or in the circumstances ought to have known, the facts or the law on which his good faith depends. Under Dutch law, a party bases its good faith on certain facts or circumstances and if that party is ill-informed, then that party is considered not to be acting in good faith. The implication of this is that a party may be under a duty to investigate. UK France Germany The Netherlands There has been a recent The concepts of reasonable There is no universal definition of the The term “reasonable endeavours” restatement of the meaning of endeavours and best endeavours term “reasonable endeavours”, but has no clear meaning under Dutch “reasonable endevours”: what are not recognised under French to analyse whether an endeavour law. It can be considered to be part would a reasonable and prudent law. is sufficient, German courts would of the obligation to perform to “the person acting properly in their own take all circumstances into account, best of one’s ability”. Under French law, one uses commercial interest and applying including the associated cost and What is the meaning of “reasonable endeavours”? “obligation de résultat” which Such an obligation will be their minds to their contractual effort, the state of the art where translates as the obligation to obtain interpreted in accordance with the obligation have done (to try to applicable, and the relationship a certain result, or “obligation de so-called Haviltex-formula (based on achieve the objective)? between the required effort to moyens” which translates as the settled case law), which is intended achieve the goal and the importance Crucially, the obligor is not normally obligation to implement the means to fill any gaps in a contract based of the goal itself. required to sacrifice its own necessary to obtain a certain result. on the parties’ intentions and commercial interests. reasonable expectations. References to “reasonable endeavours” or “best endeavours” in a contract subject to French law would in all likelihood achieve the same result. Both terms would likely be considered as an “obligation de moyens” because they are not absolute obligations requiring the relevant party to achieve a certain result but instead they require that party to implement a certain standard or means necessary to achieve such result. UK France Germany The Netherlands Best endeavours is more stringent The concepts of reasonable There is no universal definition of the There is no concrete difference than reasonable endeavours. endeavours and best endeavours term “best endeavours”. The analysis between “reasonable” and “best” are not recognised under French carried out by a German court endeavours. The interpretation It may require the obligor to act law. would be similar as for “reasonable of such terms depends on the contrary to its commercial interests endeavours”, but less weight would circumstances of the case and and/or require expenditure by the Under French law, one uses likely be given to an argument that the meaning of such terms will be obligor. In Jet2.com v Blackpool “obligation de résultat” which a specific action was not required determined by the court. Airport Ltd the court held that an translates as the obligation to obtain because it was too onerous. What is the meaning of “best endeavours”? obligation on an airport to use best a certain result, or “obligation de endeavours to promote an airline’s moyens” which translates as the low-cost services required the airport obligation to implement the means to open outside of its normal working necessary to obtain a certain result. hours (to accommodate the airline’s References to “reasonable early morning and late evening endeavours” or “best endeavours” flights) despite the airport incurring in a contract subject to French law a loss in doing so. would in all likelihood achieve the same result. Both terms would likely be considered as an “obligation de moyens” because they are not absolute obligations requiring the relevant party to achieve a certain result but instead they require that party to implement a certain standard or means necessary to achieve such result. UK France Germany The Netherlands Yes, there is an important difference. The concepts of warranties and German law does not distinguish No, there is no clear difference representations are not recognised between warranties and between representation (“feitelijke” A warranty is a contractual under French law.
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