The economic efficiency of the rules governing contractual negotiations: from English micro-efficiency to French macro-efficiency

It is commonly suggested that English law, by being more influenced by commercial expectations, is more economically efficient than French law. How true is this statement when it comes to rules governing negotiations? This article aims to show that the two legal systems are actually both efficient but on a different scale: while English law clearly adopts an efficient position on a micro-scale, French law is rather efficient on a macro scale.

On the micro-scale: the dubious efficiency of French law

 When one considers a peculiar situation between A and B, it appears that French law does not comply with business expectations in the same way as English law does. Consequently, French law seems to be economically inefficient. Such a statement can be illustrated in two ways: firstly, regarding the existence of the duty to disclose information during negotiations, it must be noted that while English law does not have a general duty of disclosure, French law does, pursuant to legislation or case law. Consequently, if A does not disclose information about his prestation or about B’s prestation, the contract concluded might be annulled under the erreur or dol’s doctrines. On the other hand, in English law, such a situation will not cause the rescission of the contract as long as the contract is not said to be uberrimae fidei. Although fairer, the French solution does not seem to be economically efficient since it does not encourage individuals to conduct investigations on the contract’s subject matter, moreover, it might deprive a party of the benefit of a contract for the mere reason that the other party was misled by his or her own personal ignorance. On the contrary, the English solution is more efficient because it encourages parties to invest in the acquisition of information which will ultimately benefit society as a whole. Secondly, regarding the breaking off of negotiations, while English law is governed by the principle of freedom, French law has developed a set of rules which preclude the negotiating parties into breaking off negotiations in certain circumstances. Thus a party might be liable in tort if she brutally and unilaterally breaks off negotiations, or if he or she failed to comply with the requirement of good faith during the said negotiations. Such regulations are unknown in English law; the latter only recognises pre-contractual liability in certain instances, such as misrepresentation. Once again, French law does not seem to comply with the expectations of commercial practice, which requires the ability to break off negotiations when, for instance, there is a more profitable opportunity elsewhere. More generally, it appears that the English position fits better with the adversarial nature of contractual relationship, while French law does not, at least on a micro-scale.

On the macro-scale: the genuine efficiency of French law

 When one does not merely consider a particular situation, but rather the contractual practice as a whole, it appears that French law can be regarded as efficient: as macroeconomic rules can have an influence on economic agents, macro-legal rules may be used to regulate commercial practice. French law seems to follow this path by imposing a duty on negotiating parties to conduct negotiations in good faith or to disclose information about their prestations. Therefore, if one considers an individual who intends to sell a defective house to a person who is not able to detect its defect or another who entered into negotiations without a real intention to conduct them properly: while French law will deter those individuals from entering into the commercial marketplace, English law has no deterrent effect and therefore does not avoid the risk of bona fide parties investing their time and resources in pointless negotiations. Consequently, this regulatory effect assures individuals that the negotiations they have entered into are likely to be productive and, if they are not, they will be able to recover a significant part of the incurred expenses. Therefore, by providing a sound marketplace, French rules on negotiations are efficient, in their own way.

Maxime CORMIER

Pour aller plus loin:

B. Fauvarque-Cosson ‘Negotiation and Renegotiation: A French Perspective’ et J. Cartwright ‘Negotiation and Renegotiation: An English Perspective’ in Cartwright, Vogenauer and Whittaker, Reforming the French Law of Obligations (Hart Publishing, Oxford 2009).

M. Fabre-Magnan ‘Duties of Disclosure and French Contract Law: Contribution to an Economic Analysis’ in Beatson and Friedman Good Faith and Fault in Contract Law (Oxford University Press, Oxford 1997).

J. Cartwright Contract Law: An Introduction to English Law for the Civil Lawyer (Hart Publishing, Oxford 2007).