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4/10/2018

News on the existence of tortious liability – The possibility of enforcement of a violation of contract by a third party to the contract

By leading decision of 6 October 2006, the united chambers of the French Court of Cassation (Ass. Pl. 6 October 2006, n° 05-13.255) stated that a third party can invoke a violation of contract, if this causes damage to this party. The third party can claim this damage on the basis of tortious liability.

This jurisprudence, named “Myr’ho”, therefore officially allows invoking a violation of contract in non-contractual obligations. (Endrös, Florian, „Neue Verschärfung des Exportrisikos in Frankreich – Vertragsverletzungen indizieren deliktisches Verschulden“, PHi, 4/2007, pp. 140-142)

Subsequently, the parties to the proceedings wondered if actually any violation of contractual duties can represent tortious liability (without responding to the equally important question of how the defendant’s contractual provisions can and must become legally effective, not only to his detriment but also in his favour, as for example limitations of liability).

After jurisdiction had to deal with this topic for more than 10 years, it became clear that also the appeal bodies (Court of appeal) apply the Myr’ho judgement in a very generous kind of way and thereby considerably strengthen the position of the third party to the contract.

Meanwhile, a moderation of the principle was carried out concerning breaches of information obligations. Here, it has been proven that the third party can neither invoke on a tortious basis (see Civ. 3, 22 October 2008, n°07-15583 and Civ. 1, 15 December 2011, n° 10-17.69) nor on a contractual basis – for example as an accessory claim in a chain of purchase contracts (chain of contracts with transfer of ownership to the respective acquirer) – (Civ. 1, 17 January 2018, n°16-27016).

Accordingly, the breach of information obligations can only be pleaded by the parties to the contract.

In 2017, two Court decisions indicated a new restriction of the possibility to invoke a violation of contract on a tortious basis.

Here, we are dealing with a judgement of the chamber of commerce of the French Court of Cassation of 18 January 2017 (Com, 18 January 2017 n° 14.16-442) which was given in connection with a warranty for obligations of a transfer agreement concerning shares of a company. The chamber of commerce of the Court of Cassation confirmed the judgement of appeal by stating that the company as a third party to the contract « has neither proven nor mentioned that the violation of contract against it is a tortious act » and could therefore not invoke a violation of contract.

The third civil chamber seemed to be of the same restrictive opinion on 18 May 2017 (Civ. 3, 18 May  2017, n° 16.11-203). Co-owners of a community of owners who are not involved in a building contract brought an action against the companies that had been mandated by another part of the community of owners in relation to the realisation of constructions. The civil chamber decided for that purpose that “the reasons for an appeal […] that only refer to a violation of a contractual obligation of performance that lies in the provision of the work free of defects and according to contract are unfit to justify a tortious liability” that can be invoked by the co-owners who have not become party to the contract.

All in all, it is difficult to assess the range of the judgements.

This is particularly the case as the first civil chamber confirmed and repeated word by word the principle established in the Myr’ho-jurisprudence in 2006 in a new judgement of 24 May 2017 (Civ. 1, 24 May 2017, n°16-14.371). The first civil chamber of the Court of Cassation reversed the appeal judgement, according to which a bank guarantee or a credit by way of bank guarantee “only concerns the guarantee, and third parties cannot invoke it during a legal dispute”.

The reform planned in French liability law might, in this context, provide clarity.

The reform proposal updated at last on 13 March 2017 provides a new article 1234 for the French Civil Code with the following regulatory content: “If the non-fulfilment of a contract causes damage to a third party to the contract, the third party can only claim compensation from the party liable for the damage arising from this on the basis of non-contractual liability, and only if it produces evidence of the existence of a basis for liability provided in paragraph II, chapter II of the French Civil Code. If the third party has a legal interest in the agreed execution of a contract, it may, on the basis of contractual liability, invoke a violation of contract, if it causes it damage. The liability conditions and limitations applicable to the relation between the parties to the contract also apply towards him. Every clause limiting the contractual liability towards a third party is correct”.

As we can see, this new article provides the differentiation between a “simple” third party, who can claim the compensation of the impacts of the contract from the party liable (by proving a basis for liability) and a third party, who has a “legal interest in the agreed execution of contract”. The latter does not have to provide such proof, but the contract’s clauses apply to it, including those that limit the liability of the concerned liable party.

Consequently, the question arises of when a third party to a contract must be qualified as “simple” and when “a legal interest in the agreed execution of the contract” is existent.

Solène Marais                                                                                              6th April 2018

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