Construction Arbitration

Last verified on Wednesday 24th June 2020

Construction Arbitration: France

Frédéric Gillion

Pinsent Masons

Legal system

1. Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

France

France is a civil law jurisdiction. One of the distinctive features of the French legal system is the existence of two separate branches of law and jurisdictions: private and public/administrative.

The sources of law include the Constitution, international treaties, statutes (including codes) and regulations. Administrative law, in contrast to codified private law, has mostly developed in the administrative courts.

Statutes are passed by the Parliament and regulations by the government and other public entities.

In principle, laws cannot be passed with retrospective effect.

This questionnaire primarily focuses on private law. Where relevant, public law is also considered.

Answer contributed by Frédéric Gillion

Contract formation

2. What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

France

A private construction contract is formed in accordance with the general rules of contract law. The only limits on freedom to contract are mandatory public order measures, which cannot be excluded. Typically, the employer and the contractor agree that the contractor will deliver a precise object that is fully complete and fit for purpose. 

Public tendering rules, if applicable, have an impact on contract formation.

A 'letter of intent' would constitute an avant-contrat. While creating an obligation on the parties to negotiate in good faith to enter into a contract, such avant-contrats do not oblige parties ultimately to conclude the construction contract. However, abruptly ending negotiations will render the breaching party liable for damages in tort towards the other party.

Article 1112 of the Civil Code as it currently stands, following the reform to French contract law introduced by Ordinance No. 2016-131 of 10 February 2016 (which came into force on 1 October 2016 and applies only to contracts concluded on and from that date), specifies that these damages do not include the loss of benefits expected to accrue from the contract that was ultimately not concluded. Law No. 2018-287 of 20 April 2018, which ratifies Ordinance No. 016-131 of 10 February 2016, has further added that these damages do not include the loss of the chance to obtain such benefits either.

Answer contributed by Frédéric Gillion

Choice of laws, seat, arbitrator and language

3. Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

France

France is an arbitration-friendly forum and this is reflected in its arbitration law: parties are free to choose all of (a) to (f) above. As regards (e), the only requirement is that the arbitrator be independent and impartial.

Answer contributed by Frédéric Gillion

Implied terms

4. How might terms be implied into construction contracts? What terms might be implied?

France

Contract terms may be implied on the basis of articles 1104 and 1194 of the Civil Code, which respectively provide that contracts must be performed in good faith and that the parties to a contract are not only bound by its express terms, but also by what is implied by equity, usage or statute. These provisions were formerly contained in articles 1134 and 1194 of the Civil Code, prior to the reforms to French contract law introduced by Ordinance No. 2016-131 of 10 February 2016.

Terms usually implied in construction contracts include the duty for the contractor to inform and advise the employer (see question 13) and statutory requirements (see question 39).

Answer contributed by Frédéric Gillion

Certifiers

5. When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

France

Architects or engineers who verify payment certificates as part of their supervision of the works must act with due care within the scope defined in their contract with the employer.

The extent to which parties are bound by certificates will generally depend on contractual terms.

Where there is an over-certification of payments, the certifier may be held jointly liable with the contractor. Administrative case law also shows that a contractor can bring proceedings against the certifier.

Answer contributed by Frédéric Gillion

Competing causes of delay

6. If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

France

French law does not have an established set of rules on concurrent delay and its effect as to the contractor’s extension of time entitlement. French courts would typically address that question by adopting one of the following alternative approaches to determining causation when faced with multiple causes:

  • the doctrine of equivalent causes ("la théorie de l'équivalence des conditions"), according to which all the circumstances that contributed to the occurrence of the loss will be deemed to have caused such result in an equal way, which may result in an apportionment of the delay between the employer and the contractor, such that the contractor would only receive an extension for the reasonably apportioned part of the delay; or
  • the doctrine of adequate causation ("la théorie de la causalité adequate"), according to which only the act or event which is considered to have been the true cause or the root cause of the delay will be taken into account. If it is established that the dominant cause of delay is attributable to the employer, the culpable delay attributable to the contractor will not be taken into account and the contractor will be entitled to an extension.

Answer contributed by Frédéric Gillion

Disruption

7. How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

France

A contractor may be able to rely on the disruption caused by the employer’s breaches of contract as a defence to the employer’s claims. French law does not otherwise have an established set of rules addressing disruption claims. Any loss of productivity resulting from disruptive events will be considered by the court as any loss suffered by a party as a result of a breach of contract. Once an entitlement to damages has been established in principle, the courts have discretionary powers in the award of those damages, and may indeed award damages to a party even if the proof of quantification of the loss is difficult to establish.

Answer contributed by Frédéric Gillion

Acceleration

8. How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

France

There is no established set of rules dealing with the concept of "constructive acceleration". To succeed in its claim for additional costs resulting from acceleration measures, the contractor will need to argue that it has been forced to take those measures so as to avoid liquidated damages being levied against it in the face of what potentially might have become an unachievable contract time for completion. Its claim is more likely to succeed if an instruction to accelerate can be implied from the employer’s conduct (eg, threat of liquidated damages because the contractor is behind schedule). See also question 4.

Answer contributed by Frédéric Gillion

Force majeure and hardship

9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

France

Force majeure is now defined in new article 1218 of the Civil Code as "an event beyond the debtor's control, which could not have been foreseen at the time of conclusion of the contract, the effects of which cannot be prevented through appropriate measures and which prevents the performance of the debtor's obligations". The new article replaces old article 1148 and applies to contracts concluded on and from 1 October 2016.

Thus, for an event to constitute statutory force majeure, it must:

  • be beyond the debtor's control;
  • have been unforeseeable at the time the contract was made;
  • have consequences which cannot be prevented through appropriate measures; and
  • prevent the debtor from performing its obligations.

The practical effect of legal force majeure is merely that each party is released from the obligations affected by the force majeure event, until force majeure ceases to exist. If the impediment to performance is permanent, the contract shall be automatically terminated. Neither party can claim additional compensation directly on account of legal force majeure.

Previously, an event had to be "external" to the party invoking it in order to constitute force majeure. The new requirement, that the event be "beyond the debtor's control", is broader and therefore more favourable to contractors. However, the parties remain free to define force majeure events and their consequences in the contract, as is typically the case in most standard-form contracts. The statutory provision will therefore only apply in the absence of a force majeure clause.

Answer contributed by Frédéric Gillion

10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

France

While historically no doctrine of change of circumstance, economic impossibility or impracticality was admitted by French courts in private contracts, the recent reforms to French contract law have changed this position by introducing the notion of imprévision, a doctrine previously only available for public works contracts. New article 1195 of the Civil Code now provides a right to renegotiate the contract upon occurrence of circumstances that: (i) were not foreseeable at the time the contract was entered into; (ii) render performance of the contract excessively onerous for one party; and (iii) the risk of such onerous performance was not assumed by that party.   

The statutory provision will only apply in the absence of any contractual clause dealing with the allocation of risk in the case of unforeseen circumstances (ie, a "hardship" clause). Such hardship clauses tend to be upheld by French courts, provided they are precise and specific.

As regards contracts for the provision of public services, the theory of imprévision developed by the French courts holds that the contracting authority provides financial compensation to the contractor to enable it to perform the contract, where the economic balance of the contract has been disrupted by an unforeseeable event beyond the control of the parties. In such a situation, the contractor remains obliged to perform the contract, failing which it loses its right to compensation. The compensation (indemnité d'imprévision) paid by the contracting authority is calculated by reference to the losses suffered by the contractor between the date on which the economic balance of the contract is disrupted up to the date on which the unforeseeable event ceases, but does not cover all losses incurred by the contractor. 

Answer contributed by Frédéric Gillion

Impossibility

11. When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

France

Absent an express contractual provision entitling the contractor to relief for such an eventuality, the risk would fall at the contactor’s door under normal principles of French contract law unless the contractor could demonstrate that the aspect at issue was of such significance that impossibility to achieve it would render the contract completely devoid of purpose, thereby resulting in the contract being held null and void.

Answer contributed by Frédéric Gillion

Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

12. How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example, making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

France

In principle, contractual provisions seeking to pass risks on to the contractor for matters that it cannot foresee or control will be effective.

Answer contributed by Frédéric Gillion

Duty to warn

13. When must the contractor warn the employer of an error in a design provided by the employer?

France

French case law imposes a general duty on the contractor to warn the employer, which is assessed on a case-by-case basis. The extent of the contractor's duty to identify errors in the design provided by the employer and to warn the employer of such errors will be influenced by a number of factual circumstances. For example, although a contractor may be under an obligation to identify errors in the design and to warn the employer in light of his professional qualifications, courts have considered that a contractor who is not specialised in a particular field will not be under such a duty in a situation where an architect (or an engineer) was appointed on the project and gave directions to the contractor that were not manifestly inadequate.

Answer contributed by Frédéric Gillion

Good faith

14. Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

France

There is a general duty of good faith applicable to both pre-contractual negotiations and the performance of contracts, which is recognised by both statute and case law. Prior to the French reform of contract law implemented by Ordinance No. 2016-131 of 10 February 2016, former article 1134 paragraph 3 of the Civil Code merely obliged parties to abide by the principle of good faith during the performance of the contract. The extension of this principle beyond the performance of the contract derived only from French case law. New article 1104 of the Civil Code, which is a public policy provision, now specifically requires parties to abide by the principle of good faith during the negotiation, formation and performance of contracts.

In construction contracts, some consequences of the parties' duty to act in good faith include: 

      • The employer is under a duty to cooperate with the contractor. Courts have considered that this duty to cooperate includes an obligation not to unduly interfere with the contractor's works. Any undue interference of the employer with the works may exempt the contractor from liability.
      • Courts may prevent a party from relying on a termination clause if it is not invoked in good faith. Similarly, the general right to suspend performance if the other party fails to perform its own obligations (principle of walkaway) must be invoked in good faith. 
      • While the employer is entitled to rely on a liquidated damages clause when a particular obligation has been breached, this would in principle be subject to the general requirement that contracts must be performed in good faith. The employer would for example not be entitled to apply liquidated damages for delay in circumstances where the employer has itself caused critical delay to the works in application of the maxim "nul ne peut se prévaloir de sa propre turpitude".
      • Courts may also modify the pre-agreed amount of liquidated damages where this amount is 'manifestly excessive or derisory'.

Answer contributed by Frédéric Gillion

Time bars

15. How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

France

The effect of time-bar provisions will depend on the wording of the contract and the intention of the parties. 

In practice, French courts tend to give effect to contractual provisions that bar claims if they are not validly notified within a prescribed period. Courts have not drawn specific distinctions between claims based on matters that the employer caused and matters it did not or between claims for extensions of time and claims for additional payment.

Such clauses should, however, be exercised in good faith (see question 14). Therefore, and by way of illustration, an employer would not in principle be entitled to apply liquidated damages for delay in circumstances where it has caused critical delay to the works, even if the contractor has itself failed to notify a claim for an extension of time within the time prescribed in the contract.

Answer contributed by Frédéric Gillion

Suspension

16. What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

France

Both the employer and the contractor have a general right to suspend their performance if the other party is not performing its obligations under the contract. The suspension must be proportional to the obligations that are not being performed.

In addition, the contractor has a statutory right to suspend work in circumstances where it has not been paid and the employer has not provided the required payment guarantee.

 In contracts for public works, the contractor's right to suspend its work when the employer is not performing its obligations is normally much more limited.

Answer contributed by Frédéric Gillion

Omissions and termination for convenience

17. May the employer exercise an express power to omit work, or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

France

The employer may exercise an express contractual right to omit work.

Similarly, the employer may exercise an express right to terminate at will or for convenience. Further, there is a statutory default regime for fixed-price contracts allowing the employer to terminate the contract for convenience (subject to compensation to be paid to the contractor for loss of profit).

Answer contributed by Frédéric Gillion

Termination

18. What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

France

If there is a sufficiently serious breach of contract, a contract can be terminated through court proceedings or unilaterally. The contract can also be terminated on the basis of a termination clause. Pursuant to new article 1225 of the Civil code, the termination clause must specify the obligations in respect of which non-performance will give rise to a right of termination. See also question 17.

In administrative contracts, the employer also has a right to terminate the contract if such termination is in the best interests of the public. In the event of early termination for reasons of public interest, the contractor is entitled to full compensation.

Construction contracts can be terminated in part.

The party for the benefit of whom the contract is terminated can also seek damages if it has suffered a loss and the contractor may seek compensation on the basis of any unjust enrichment of the employer.

Answer contributed by Frédéric Gillion

19. If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

France

In addition to any contractual termination rights, the parties have a right to terminate the contract on the basis of a sufficiently serious breach of contract. See also questions 17 and 18.

Answer contributed by Frédéric Gillion

20. What limits apply to exercising termination rights?

France

There are a number of considerations that limit the exercise of termination rights, including:

  • courts may grant the party in breach extra time to perform if termination is sought in court;
  • for termination of fixed-price contracts (see question 17), courts will consider the factual circumstances of the case to assess whether the employer has abused its right to terminate;
  • unless the parties have agreed otherwise, the party seeking to terminate the contract on the basis of an agreed termination clause will need to send a notice to the party in breach before exercising its right to terminate; and
  • agreed termination clauses must be implemented in good faith.

Answer contributed by Frédéric Gillion

Completion

21. Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

France

French courts may consider that there is an implied acceptance of the works in circumstances where the employer has taken possession of the works, if the employer has paid nearly all of the contract price, partial payment not being sufficient to qualify as implied acceptance of the works as held by the Supreme Court. French courts will also refuse to consider there has been an implied acceptance of the works where the works have been taken over but the employer has refused to pay the balance of the contract price. However, this is subject to the terms of the contract not providing otherwise.

Answer contributed by Frédéric Gillion

22. Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

France

Acceptance (réception) is defined as "the act by which the employer declares that he accepts the work with or without reservation". It can occur by agreement, be implied, or pronounced in court.

In the absence of contractual provisions to the contrary, there may be an implied acceptance if there is evidence of the unequivocal intent of the employer to accept the works. See question 21.

Acceptance of the works by or on behalf of the employer in principle bars claims for defects that were apparent at the time of acceptance. However, if the extent or the consequences of such defects are only revealed after the acceptance of the works, then those defects may still give rise to liability. It also does not bar claims in relation to those defects against the architect or engineer whose obligation was to assist the employer with the acceptance process.

Answer contributed by Frédéric Gillion

Liquidated damages and similar pre-agreed sums ('liquidated damages')

23. To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

France

Delay liquidated damages will normally be due irrespective of whether the employer has suffered damages equivalent to the amount envisaged in the contract.

Liquidated damages for delay to the completion of the works will not necessarily be treated as an exclusive remedy except where the parties have specifically agreed so. Even where the parties have so agreed, it will not be an exhaustive remedy in circumstances where part of the damages incurred are held to fall outside of the ambit of the agreed liquidated damages clause.

In the event of the contractor’s fraud, wilful misconduct, recklessness or gross negligence, the contractor would not be entitled to rely on the liquidated damages clause to limit its liability (see question 31) by virtue of article 1231-3 of the French Civil Code, which provides that "the defaulting party is only held liable for the damages that were contemplated or could be foreseeable when the contract was entered into between the parties, unless the non-performance is due to gross negligence [faute lourde] or wilful misconduct [faute dolosive]."

Gross negligence and wilful misconduct have been defined by case law:

  • gross negligence is a breach of utmost gravity that denotes the inability of the defaulting party to perform its contractual obligations; and
  • wilful misconduct has been found when the defaulting party deliberately refuses to perform its obligations, even if the refusal is not dictated by the intent to harm the other party.

Article 1231-3 of the French Civil Code is a public policy provision that cannot be excluded by agreement.

Answer contributed by Frédéric Gillion

24. If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

France

As seen in question 14, the employer would not be entitled to apply liquidated damages for delay in circumstances where the employer has itself caused critical delay to the works as this would be contrary to the principle of good faith. 

Answer contributed by Frédéric Gillion

25. When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

France

French courts may lessen the agreed liquidated damages when they appear to be manifestly excessive. Courts will consider the excessive nature of the stipulated damages compared to the absence of loss or damages actually suffered as well as the overall value of the contract. Courts may appoint an independent expert to help with the assessment of the actual damages suffered to determine if the liquidated damages are manifestly excessive. 

The courts' power to decrease (and increase) the stipulated damages may not be modified or excluded by contract. Administrative courts have similar powers. 

There is no express provision in French law giving similar powers to arbitral tribunals.

Answer contributed by Frédéric Gillion

26. When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

France

While French courts rarely use their powers to increase an award of pre-agreed liquidated damages, in doing so, they would take account of the amount of damages actually suffered by the claimant. As seen in question 23, a court or arbitral tribunal may also award more than the liquidated damages specified in the contract (including damages that were not foreseeable) in circumstances where the liquidated damages clause is rendered unenforceable by virtue of article 1231-3 of the French Civil Code, namely in the event of gross negligence (faute lourde) or wilful misconduct (faute dolosive).

Answer contributed by Frédéric Gillion

Assessing damages and limitations and exclusions of liability

27. How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

France

Monetary compensation for breach of contract is assessed on the basis that there must be full compensation. Damages will be awarded for losses that are certain and a direct and immediate result of the breach, if they were a foreseeable consequence of the breach when the contract was concluded. Compensation can amount to all losses suffered to the extent they are proven.

If the above conditions are fulfilled, damages may include losses of profits, even if they are exceptionally high.

Answer contributed by Frédéric Gillion

28. If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

France

Courts may order the rectification of non-compliant works so long as the rectification is not impossible, even if the cost of rectification is disproportionate to the benefit of the remedy. In theory, the parties could agree on an even stricter regime for the contractor provided the negotiated regime does not offend matters of public policy.

Answer contributed by Frédéric Gillion

29. If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

France

Under the statutory warranty regime of perfect completion warranty, the contractor is required to remedy defects notified by the employer at the time of acceptance or within one year of acceptance.

After the expiry of this period, the employer may claim for:

  • hidden defects at the time of acceptance, which either imperil the strength of the building or render it unfit for its purpose, which may come within the decennial warranty regime;
  • defects over items of equipment which are 'dissociable' from the structure (ie, items which can be removed without disturbance to the structure), which may come within the biennial warranty regime; or
  • other defects may fall under the general regime applicable to builders' liability for breach of contract.

See questions 15 and 38.

Answer contributed by Frédéric Gillion

30. What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

France

In principle, the breaching party has no liability for indirect losses. This principle applies equally whether the contract is a private contract or an administrative contract. 

The determination of what constitutes indirect or consequential loss is left to the trier of fact. As a result, exclusions of liability for such losses will be interpreted on a case-by-case basis. Legal warranties (such as decennial liability) are a matter of public policy and cannot be limited. Therefore, clauses limiting the amount of consequential losses recoverable under these warranties would be found to be inoperative. 

Answer contributed by Frédéric Gillion

31. Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

France

Limitations and exclusions of contractual liability are normally effective. There are, however, three broad exceptions:

  • first, where the breach was caused by a faute dolosive (wilful misconduct) or faute lourde (serious breach, which often corresponds to the common law concepts of recklessness or gross negligence), both defined on a case-by-case basis by the courts (see question 23);
  • second, where the contractual liability provided for is considered derisory or insignificant. Courts will consider the economic rationale for the clause; and
  • third, in the case of the statutory regimes of strict liability set out in articles 1792 et seq of the French Civil Code, ie, decennial liability and biennial liability (discussed below).     

These principles apply even if the contract is silent as to such behaviour and the parties cannot agree otherwise.

In relation to the third exception, limitation and exclusion clauses are not valid where the contractor is strictly liable under the statutory regimes of decennial liability and biennial liability. These regimes apply to "builders", widely defined under article 1792-1 of the Civil Code as (i) architects, contractors, technicians or other persons bound to the building by a contract of hire of work (ii) any person who sells, after completion, a work that he or she built or had built (iii) any person who, although acting in the capacity of agent for the building owner, performs duties similar to those of a hirer out of work.

Under the regime of decennial liability established by article 1792 of the Civil Code, builders are strictly liable for 10 years to owners and purchasers in respect of defects (including defects of the soil) which compromise the strength of the building, or render it unfit for purpose. A builder can only escape liability by proving that the damage was caused by an extraneous event (eg, force majeure).

Biennial liability established by article 1792-3 of the Civil Code guarantees the good operation of elements of equipment that do not form part of the building for two years. In principle, it is not possible to exclude or limit liability in tort.

Answer contributed by Frédéric Gillion

Liens

32. What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

France

The contractor benefits from a statutory lien over the works. In practice, this remedy is rarely used as the lien is limited to the added value of the contractor’s works and the exercise of the lien requires compliance with a relatively cumbersome procedure.

See also question 52.

Answer contributed by Frédéric Gillion

Subcontractors

33. How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

France

There is no express unfair terms regulation prohibiting pay-when-paid provisions as such. However, Law No. 75-1334 of 31 December 1975 on Subcontracting (the 1975 Law) sets out mandatory rules whereby for private works, subcontractors may seek direct payment from the employer in court if the main contractor has not paid within a month of a request for payment. In March 2014, a new statute shortened the delay for interim payment of subcontractors (now 45 days) and failure to timely pay the subcontractor will trigger an administrative fine.

For private works, the contractor is also required to either delegate the subcontractor’s payment to the employer or establish a bond guaranteeing payment of the subcontractor. In the absence of either, the subcontract is void.

For public works, approved subcontractors will normally be paid directly by the employer. This does not prevent the subcontractor from seeking payment from the contractor. 

For both types of works, the contractor is required to inform the employer of the presence of subcontractors on site and has to submit their payment terms for approval. Where the employer becomes aware of the presence of a subcontractor on the site, the employer has the obligation to request the contractor provide the payment terms of the subcontractor for approval. The French Supreme Court held that a contractor is not liable for not submitting the payment terms of the sub-subcontractor to the employer for approval. Such an obligation lies with the subcontractor.

Answer contributed by Frédéric Gillion

34. May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

France

Faced with proceedings brought by the subcontractor under the 1975 Law, the employer may rely on the defences that it could have invoked against the main contractor. For public works, approved subcontractors will normally be paid directly by the employer, provided that the main contractor has approved the amounts being claimed.

If a construction project is located in France, case law suggests that subcontractors are able to rely on the mandatory provisions of 1975 Law, regardless of any choice of law in the main contract or the subcontract.

Answer contributed by Frédéric Gillion

35. May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

France

While the employer will be able to hold its contractor to a valid arbitration clause contained in the main contract (regardless of its seat), there is a risk of parallel proceedings, as subcontractors may be able to rely on the 1975 Law to initiate court proceedings directly against the employer. In such circumstances, the main contractor has the option of joining the court proceedings.

Answer contributed by Frédéric Gillion

Third parties

36. May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

France

In principle, agreements only confer rights and impose obligations on the contracting parties (effet relatif des conventions), such that third parties to the construction contract can only bring claims in tort against the contractor (in which case the exclusions and limitations of liability under the construction contract are not applicable).

However, in circumstances where property is transferred, the ultimate owner may be able to bring claims in contract against the contractor.

The ultimate owner may also be able to bring claims for defects under the decennial or biennial warranty regimes.

Answer contributed by Frédéric Gillion

37. How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

France

French law respects principles of privity of contract and of separate legal identity of companies. Thus, with rare exceptions, it is not possible to extend claims in respect of delays, defects or payment against a company’s affiliate, director or employee. Exceptions include where the parent company has given the appearance of having contracted for all or part of the subsidiary’s obligations or of having assumed the operations of the subsidiary; where assets and liabilities of the parent and subsidiary have become intermingled; and as against directors, where there is a breach of a legal or regulatory obligation, mismanagement of the company, provided that the failings were intentional and sufficiently serious.

Liability exclusions or limitations contained in the underlying construction contract are inoperative or irrelevant or both.

Answer contributed by Frédéric Gillion

Limitation and prescription periods

38. What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

France

Since the reform of the law on limitation of 2008, the limitation period for claims in tort and contract is five years. This period can be suspended, including in the case of mediation. It is interrupted by the commencement of legal proceedings or the acknowledgement by the defendant of the claimant’s right to claim. Parties to a contract may agree to extend or shorten the limitation period, albeit to no less than one year or beyond 10 years.

Specific limitation periods take precedence over the five-year general limitation period. Limitation periods relevant to construction contracts include:

a) Three mandatory warranty periods:

  • perfect completion warranty, which requires the contractor to make good any defect notified upon acceptance of the work or within one year of acceptance;
  • warrant of good operation, which creates a biennial warranty that all equipment which does not form part of the building is in good working condition; and
  • decennial liability, which creates a statutory warranty in respect of any defects hidden at the time of delivery that either imperil the strength of the building or render it unfit for purpose (see question 31).

b) A 10-year limitation period, which is applicable to other claims against contractors and subcontractors for defects that materialise after the acceptance of the works but which do not qualify for relief under the biennial or decennial warranty. This limitation period, originally devised by the Cour de cassation in a case dated 11 June 1981, is now enshrined at article 1792-4-3 of the Civil Code following the reform of the civil statute of limitations implemented by Law No. 2008-561 of 17 June 2008.

Limitation rules generally constitute substantive law under French law.

Answer contributed by Frédéric Gillion

Other key laws

39. What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

France

Where the contract is governed by French law, laws which cannot be excluded or modified by agreement include:

a) In principle, the 1975 Law (see questions 33 to 35);

b) Law No. 71-584 of 16 July 1971, which governs the employer’s retention guarantee (see question 52);

c) article 1799-1 of the Civil Code, governing the employer’s payment guarantees (see question 52);

d) The statutory warranty regime under article 1792 et seq. of the Civil Code (see questions 15, 29 and 38).

Examples of provisions of the FIDIC Silver Book which would need to be read in light of  the French statutory regime include clause 11 on Defects Liability (see question 29) and clause 17.6, which excludes liability for ‘indirect or consequential loss’ (see question 30). Termination by the employer for the bankruptcy, insolvency or liquidation of the contractor under clause 15.2 is inoperative as such termination would violate compulsory provisions on insolvency proceedings.

Answer contributed by Frédéric Gillion

40. What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

France

If a construction project is located in France, case law suggests that the mandatory provisions of the 1975 Law will apply, regardless of any choice of law clause in the main contract or the subcontract. See question 34.

Answer contributed by Frédéric Gillion

Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

41. For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

France

Before the constitution of the arbitral tribunal, courts have wide powers to order interim measures, including référé-provision, which allows a court provisionally to order payment of an undisputed amount. This would not be possible in the event of a DAB decision that has been the subject of a notice of dissatisfaction. Once the arbitral tribunal has been constituted, the courts’ powers to order interim measures will then be restricted by the terms of the arbitration agreement. Given the wording of sub-clause 20.6 [Arbitration] of the FIDIC Red Book 1999, it is unlikely that a French court would accept jurisdiction in connection with a party’s application for interim relief requiring payment of the sum awarded by the DAB. However, that party may apply for an interim or partial award (in respect of the other party's failure to comply with the DAB decision in breach of sub-clause 20.4) and, if successful, may seek to enforce that award in France.

Answer contributed by Frédéric Gillion

Courts and arbitral tribunals

42. Does your jurisdiction have courts or judges specialising in construction and arbitration?

France

There are no specialised courts dedicated to construction and arbitration matters. However, (i) most civil courts have a section dedicated to construction matters; and (ii) the Paris Civil Court (Tribunal de Grande instance) has a judge dedicated to arbitration matters.

Dispute review boards are increasingly popular in the private sector. Several large-scale projects have recently implemented a dispute board as part of their dispute resolution mechanism. The nature of the decision of the dispute board, including whether or not it is binding on the parties, will depend on the terms of the contract.

In case of public works, article 50.4 of the CCAG Travaux (which are essentially non-mandatory general administrative clauses that may be incorporated into French public works contracts) allow the parties to a public works contract to refer disputes to a specialised ad hoc dispute review board (which gives non-binding recommendations or opinions). Recently, such a dispute review board was introduced on a standing or permanent basis in the context of the Grand Paris project, an ambitious €30 billion project to connect the larger Paris region's major social, economic and infrastructure hubs with its metropolitan centre.

Another interesting development is the launch of the International Chamber of the Court of Appeal of Paris which became operational in March 2018. The International Chamber has jurisdiction to hear international commercial disputes. It allows the use of English exhibits without requiring translation, and parties, witnesses and experts are permitted to address the court in English. Foreign witnesses and experts may also provide testimony in English.  International construction cases will likely be handled by this court in the near future.

Answer contributed by Frédéric Gillion

43. What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

France

For construction matters, civil courts operate on three levels: first instance, appeal and Supreme Court (Cour de cassation). For arbitration matters, the Paris civil court has a specialised judge in support of arbitration. Applications to set aside international awards rendered in France are heard in the court of appeal of the place where the award was rendered (in practice almost invariably Paris).

Redacted decisions of first instance and appeal are published if of sufficient interest; those of the Supreme Court are generally published.

A doctrine of binding precedent does not exist. However, courts do generally follow the precedents of the highest courts.

The position is slightly different in administrative law.

Answer contributed by Frédéric Gillion

44. In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

France

A French civil court judge cannot raise issues not raised by the parties (with very limited exceptions). French courts do not indicate their views on the issues or give preliminary indications. In international arbitration in France, the parties are free to organise their proceedings as they wish and may entitle the tribunal to give preliminary indications on the merits of the case, subject to due process.

Answer contributed by Frédéric Gillion

45. If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

France

Where an arbitration agreement exists, the parties are barred from bringing an action in the French courts. Where the arbitral tribunal has not yet been constituted, courts must decline jurisdiction unless the arbitration agreement is manifestly void or inapplicable. Once it is constituted, courts must decline jurisdiction or stay court proceedings.

Where the parties agreed on compulsory preconditions to arbitration, they are contractually required to comply with them. This is construed by the courts as a question of admissibility of the claim.

Answer contributed by Frédéric Gillion

46. If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

France

No. Pursuant to article 1468 of the French Code of Civil Procedure (CPP), the arbitral tribunal is allowed to grant the preliminary or interim measures that it deems appropriate, and if necessary even attach penalties. Nevertheless, the aforementioned article sets some restrictions, since only national courts have the power to order conservatory attachments (sequestration) and judicial security. Moreover, article 1449 of the CPP clearly indicates that despite the existence of an arbitration agreement and in cases where the arbitral tribunal has not yet been constituted, French courts are entitled upon a party’s request to grant preliminary or interim relief. As a practical matter, intervention by French courts is rather limited and the dominant position is the enforcement of arbitration agreements.

Where a party raises jurisdictional objections on the basis that the other party to the arbitration has made a prior application to a foreign court for interim or provisional relief, French law explicitly recognises the principle of compétence-compétence (ie, the arbitral tribunal’s power to decide on questions of its own jurisdiction). In this respect, article 1448 of the CPP gives priority to the arbitral tribunal to rule on jurisdictional matters and French courts must decline jurisdiction with the exception of cases where the arbitration agreement is manifestly null and void.

Answer contributed by Frédéric Gillion

Expert witnesses

47. In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

France

A neutral judicial expert is often appointed in court proceedings and plays an important role in the vast majority of construction disputes in France. While his report is not binding, in most cases, courts will rely on and confirm the expert’s conclusions.

In arbitration proceedings, unless otherwise agreed by the parties, the tribunal will normally be able to appoint a neutral expert. It is common practice for parties to appoint their own experts in arbitration (and increasingly in court proceedings). Party-appointed experts owe duties to the party that appointed them.

Answer contributed by Frédéric Gillion

State entities

48. Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer).

France

In principle, French state entities cannot arbitrate, subject to exceptions that include international trade.

Public procurements rules (including the Procurement Code) normally apply where the employer is the French state or a French public authority, although they may apply to private entities in some cases. 

Contracts for public works have distinctive features, such as the employer's right to terminate the contract if in the public interest or to modify the contract (subject to compensating the contractor).  

Administrative courts can issue a payment order sanctioned by a monetary penalty against French public entities. Enforcement against a private entity owned by the state is possible.

In accordance with the French view on state immunities, French courts would not grant enforcement of an award against a foreign state or a state entity unless it relates to non-public assets or assets attributed to a private (commercial) activity or purpose of that state. 

The request for enforcement of awards in relation to PPP or those involving public procurement rules against a French state entity in France must be submitted to administrative courts, which have exclusive jurisdiction to rule on such request. The Conseil d’Etat (the Supreme Administrative Court) can review international arbitral awards when it acts as an appellate jurisdiction if the control involves the respect of mandatory public rules by the arbitral tribunal and the arbitral award deals with one of the four categories of administrative contract: contracts of occupancy agreement in the public domain procurement contracts, partnership contracts and public service delegation contracts. All other disputes fall within the jurisdiction of ordinary courts.

Answer contributed by Frédéric Gillion

Settlement offers

49. If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

France

There is no requirement for a court or arbitral tribunal to take into consideration the refusal of a settlement offer that exceeds the amount awarded and there is no equivalent of the ‘sealed offer’ mechanism in France. There is no ‘without prejudice’ privilege for settlement offers (see question 50) and therefore these must be exchanged through legal counsel to be legally protected from disclosure.

Answer contributed by Frédéric Gillion

Privilege

50. Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

France

There is no ‘without prejudice’ privilege for settlement offers and, for this reason, offers are generally exchanged through lawyers because correspondence between French avocats is a legally protected form of confidentiality unless that correspondence was specifically marked ‘official’. An agreement between parties for specified damages in the event of breach of defined confidentiality obligations would, in principle, be valid and enforceable.

Answer contributed by Frédéric Gillion

51. Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

France

Unlike avocats who are members of a French Bar, in-house lawyers are not members of a regulated profession in France and thus, communications between in-house lawyers and the management or other personnel of the company they work for are not legally protected.

Answer contributed by Frédéric Gillion

Guarantees

52. What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

France

Any guarantee must be made in writing. Most guarantees given in the context of a construction contract in France are regulated by statute, such as the mandatory payment guarantee (garantie de paiement), which must be given by the employer for private works contracts exceeding €12,000 excluding taxes. Similarly, the employer is entitled to a retention guarantee of up to 5 per cent of each instalment payment made to the contractor in order to cover any reservations made upon acceptance of the works. The retention guarantee can operate by way of an escrow arrangement or alternatively a bank guarantee.

Answer contributed by Frédéric Gillion

53. Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

France

The guarantees will in principle be limited to what is expressly specified in the construction contract, provided it is not prohibited by law.

Answer contributed by Frédéric Gillion

54. Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

France

In general, the guarantor will be released from liability once the guarantee has expired. The guarantor may also be released from liability in certain circumstances, including set-off (compensation), novation, or mixing of creditor and debtor assets (confusion des patrimoines).

Answer contributed by Frédéric Gillion

On-demand bonds

55. If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

France

Absent a jurisdiction clause in the on-demand bond, competence would be accorded by French courts to the courts of the country in which the guarantor or the counter-guarantor (usually banks) have their registered seat. As a matter of substantive law, a call may only be challenged in case of manifest fraud or abuse.

Answer contributed by Frédéric Gillion

56. If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts that the employer is entitled to (such as sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

France

An on-demand bond constitutes a primary obligation on the bank to pay in circumstances where the contractor fails to perform the construction contract, without the employer having to prove a breach of the underlying construction contract. The possible actions to restrain the call are thus very limited. Courts and arbitral tribunals will simply look at whether the employer has an entitlement in principle to make the call and has called the entitled amount.

Answer contributed by Frédéric Gillion

Further considerations

57. Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

France

There are several types of mandatory insurance obligations for construction projects, including in relation to decennial warranty obligations.

Answer contributed by Frédéric Gillion

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