Grey Areas: How does case law approach IT projects when they fall outside the contractual framework?
Summary of the webinar presented on February 29, 2024, at Numeum, the French professional organization of the digital ecosystem.
Table of Contents
1. Mastering the Pre-contractual Phase
2. Lack of Formalized Contract
3. Project Extending Beyond the Contract: deviations
1. Mastering the Pre-contractual Phase
- Reminder of the principles governing the pre-contractual phase
- Implementation of these principles through case law examples
A principle of freedom limited by good faith
Mastering the progress of discussions and commitment of the pre-contracting parties.
French Civil Code Article 1112-al 1
« The initiation, conduct, and termination of pre-contractual negotiations are free. They must imperatively meet the requirements of good faith. »
Sanctions: principle of compensation
Frenc Civil law Article 1112-al 2
It sets out the methods of calculating damages:
“In the event of a fault committed in the negotiations, the compensation for the resulting damage may not aim to compensate for neither the loss of the expected benefits of the contract not concluded, nor the loss of the chance to obtain these benefits.”
Principle of transparency: pre-contractual obligation of information
Mastering the intensity levels of the “pre-contractual” information obligation:
Pre-contractual obligation to inform vs obligation to inquire.
Art. 1112-1 of the French Civil Code provides for the obligation for “the party who knows information [condition1] which is determinative for the consent of the other [condition 2] to inform them as soon as it legitimately believes that the other party is unaware of this information [condition 3] or relies on its co-contractor.”
Three levels of intensity of the information obligation: information, warning, advice
Wrongful termination of negotiations: cases and burden of proof
To determine if a termination is abusive, several contextual and behavioral elements are taken into account, such as:
- the duration of the negotiations,
- the state of the negotiations,
- the existence of a legitimate reason,
- the suddenness of the termination,
- the parties’ level of experience.
Instances of wrongful terminations
Paris Court of Appeal, March 13, 2020, 17/08889
A bank contracts with a consulting company which decides to subcontract this mission and enters into negotiations with a company specialized in providing IT services. The latter proposes an employee before the conclusion of the subcontracting contract (employee accepted by the client). The next day, the employee resigns, and the consulting company terminates the negotiations.
“The freedom not to enter into a contract, which includes the freedom to terminate negotiations at any time, is limited by the duty of good faith and loyalty of each of the parties.”
IIt was up to the alleged victim to establish the breach of the alleged obligation to negotiate in good faith.
Since good faith is presumed, the alleged victim must still establish the bad faith of their partner.
See also :
- Paris Court of Appeal, October 6, 2020, 18/17382,
- Montpellier Court of Appeal, January 28, 2022, 19/06598
Key Points
- It is up to the party alleging a breach of the duty of loyalty in the termination of negotiations to prove it.
- Fault in the termination of negotiations is narrowly accepted. Case law logically favors contractual freedom.
- Relative importance of the duration of negotiations and the abruptness of the termination
- Essential demonstration of bad faith
- Validity of clauses recognizing the negotiation right, fulfillment of the pre-contractual duty of information?
- Importance of testing phases, Proof of Concept
Nature of the recoverable damage in case of wrongful termination of pre-contractual relations
Commercial Chamber of the Court of Cassation, March 31, 2021, 19-14.533
“In the event of an abusive termination of negotiations, the loss of a chance to realize the gains that the conclusion of the contract allowed to hope for does not constitute recoverable damage.”
What damage is reparable? The limits of compensable damage in case of termination of negotiations.
The damage caused at least partially by the loss of the chance to realize the gains that the conclusion of the contract allowed to hope for is not compensable.
Compensable damages include:
- investments related to negotiation and made on this occasion
- loss of the chance to conclude with a third party
Les silences fautifs du contractant
Faulty silence of the contractor
Criteria for wrongful silence: Although the provider is required to provide pre-contractual information, advice, and warning, the client is still required to verify the adequacy of the software to their needs.
In two cases, the court refused to grant the requests of client companies seeking to have their provider condemned. The judges recognized clients had not demonstrated that the providers had failed in their pre-contractual obligation to provide information.
Operating in “data intelligence” and having an active and competent internal IT department, the client was able “to understand the specifics of the software” (Versailles Court of Appeal, September 7, 2021)
Although no specifications were drawn up, the provider proved that it had determined the client’s needs, notably through the drafting of a brief (Bordeaux Court of Appeal, March 16, 2022)
Faulty silence of the contractor (error)
Grenoble Court of Appeal, June 24, 2021, n° 20/01245 (yes)
Error, according to the Court, established and contract annulled:
The lower courts rightly noted that the respondent’s consent was given on the basis of truncated elements,
o the fact that respondent acknowledged having read and accepted T&Cs cannot counter the illegibility and particularly large volume of these terms, making effective knowledge impossible
o It is thus established that had the respondent had real knowledge of these terms, which were up to the appellant to clearly state under the contractual good faith, she would not have contracted. It does not matter in this respect that another operator uses similar clauses.
- There is therefore no need to examine the conditions for the termination of this contract, the annulment having retroactive effect.
- See also: Versailles Court of Appeal, October 25, 2022, 21/02882 (yes) Grenoble Court of Appeal, January 12, 2023, 21/03701 (yes): ð Contra: Paris Court of Appeal, May 16, 2022, 20/15069 (no)
Faulty silence of the contractor (fraud)
Paris Court of Appeal, November 18, 2022, 18/07000 (yes)
For the Court, the behavior of the editor characterized concealment of information which, if known, would have prevented the client from contracting.
Nullity for fraud of the contract was therefore retained, and the editor was ordered to reimburse all amounts received.
2. Lack of formalized contract
2.1 The Project started without a formalized contract and raised a dispute
An agreement between the parties exists, materialized by the unsigned contract.
Paris Court of Appeal, 30/09/2022, # 20/04813
« Thus, the almost complete realization of lot 1, while this lot represents the entire base, the fact that at no time did the parties consider that the contract only concerned lot 1, and the content of the exchanges and steering committees mentioned above, sufficiently prove the agreement of the parties on the entire operation comprising lots 1 to 4 (…) although the contract was not signed, proof of such an agreement not requiring, among merchants, a written document.”
Therefore, in accordance with art 1134 of the French Civil Code, the agreement had to be executed in good faith by each party.
See also:
Aix Court of Appeals, May 12, 2022 – 20/13187
In the absence of a formalized contract, given the commercial relations that lasted for 2 years, the existence of a contract is retained to hold the client liable.
Grenoble Court of Appeals – September 9, 2021, # 19/02197
The liability of the service provider is recognized based on a fixed result obligation relying solely on invoices and email exchanges in the absence of a formalized contract.
Contrary opinion: Versailles Court of Appeals, January 18, 2024, # 22/07830 (on referral)
Contractual liability is not recognized based on a draft contract, as commitments can only materialize under circumstances that have not occurred.
In the absence of a written contract and enforceable general conditions, the only obligation of the service provider is to provide a dedicated server to host the client’s data.
Lyon Court of Appeals, February 27, 2020, # 18/00308
“In the absence of a written contract and enforceable general conditions, the client fails to demonstrate that the service provider failed to fulfill its contractual obligations. It is undisputed that ELB multimedia and Match were bound by a service contract but there is no written contract defining their respective obligations. The client argues that the general conditions provided are not binding on them. The Court recalls that general conditions only acquire contractual value if they are known and accepted from the outset by the party to which they are opposed. Consequently, the client cannot rely on the general conditions of the service provider to justify obligations on the latter.”
In the absence of a written contract and enforceable general conditions, the Court holds that the only obligation of ELB was to provide its client with a dedicated server to host its data
2.2 The defaulting service provider is not the co-contractor
Clients could legitimately believe in the existence and powers of an apparent mandate of the Service Provider to bind other companies of the ALTICAP Group
Rennes Commercial Court, October 14, 2021
« “The name ALTICAP appears on the first page of the contracts, but also prominently in the header on each subsequent page. The name ALTISAAS appears, in smaller font, on the right side of the header of the inner pages. The roles of the various companies of the ALTICAP group are not defined in the two supply and service contracts. Invoices sent to the plaintiffs bear the name ALTICAP on the header, and below it, in a significantly smaller font, ALTISAAS; The Court observes through this set of evidence that the clients could legitimately believe in the existence and powers of an apparent mandate of ALTICAP to bind the other companies of the ALTICAP group. Therefore, the Court rules that the clients are well-founded to pursue ALTICAP in its capacity as an apparent agent”
2.3 What happens in the absence of a formalized contract in case of conflict between Purchase T&Cs and Sale T&Cs?
In the presence of general terms whose essential stipulations are incompatible with each other, it should be considered that they nullify each other, leading to the examination of the dispute according to common law.
Paris Court of Appeals, June 17, 2021, # 17/05445
“The buyer attempted to impose its general terms of purchase and (…) upon receipt of the order with its own general terms of sale, the seller sought to assert its own conditions and thereby implicitly and necessarily indicated that it did not accept the general terms of purchase attached to the order. The buyer had the option to cancel the order”
3. The Project Goes Beyond the Contract: deviations
3.1 Price Dispute – Possibility of Changing the Announced Price
Rennes Court of Appeals, September 14, 2021, # 18/06942
« By requesting a doubling of the budget or by agreeing to only complete half of the project, the company SII committed a fault engaging its contractual liability and making the continuation of the contract execution impossible, which is therefore terminated due to its exclusive fault. »
Similarly, Lyon Court of Appeals, March 23, 2023, No. 19/03989
3.2 Deviation in terms of deadline
Aix Court of Appeals, May 27, 2021, # 19.02282
« No document was established so it is impossible to verify if SARL Planisphère Informatique, as a professional obligated to advise and inform its client, actually addressed these needs, so it is not entitled to invoke, to justify the delivery time, the adaptation by the parties of the scope of intervention. (…) Given these multiple failures leading to the outright abandonment of the recommended solution (…) it is rightfully (…) that the lower courts pronounced the judicial resolution of the contract. »
Similarly
- Versailles Court of Appeals, December 16, 2021, # 20/00467
- Reims Court of Appeals, October 18, 2022, # 21/00012
- Versailles Court of Appeals, July 26, 2022, # 21/03036
Contrary opinion: Aix Court of Appeals, June 30, 2022, # 19/12355 Rejects resolution due to the fault of the Service Provider.
« “While the four-month deadline provided, which was not imperative in any case, was not respected, SAS AvantCard, contrary to its claim, was always informed of the delays that occurred, and cannot solely blame them on its service provider, even though the extension of this deadline appears notably linked to the modifications made by it regarding the envisaged hosting and especially to its failure to comply with its own obligations regarding the settlement of the services performed.” »
| Olivia FLIPO Doctor of Law Attorney at Law tel: +33 6 83 86 70 03 / 140 avenue Champs Elysées 75008 Paris www.flipo-avocat.com |
Florence IVANIER Attorney at Law AURELE ITtel: +33 1 89 16 81 12 / 6 rue Jean de la Fontaine 75016 Paris www.aurele-it.fr |