After the strong commitment displayed by French judges to the binding force of contracts, the opportunity introduced by the reform to invoke unforeseen circumstances to revise the agreed price at the request of one of the parties to the agreement had constituted an important innovation,2 even though the wording adopted in the 2016 Reform Law primarily has a preventive role, which favors renegotiation between the parties.3
In response to concerns expressed by practitioners,4 law no. 2018-287 of 20 April 2018 ratifying the 2016 Reform Law introduced a corrective measure, in the form of a new article L. 211-40-1 of the Monetary and Financial Code (Code monétaire et financier),5 to exclude securities issued by limited liability companies. The aim was to exclude all transactions in financial instruments from the unforeseen circumstances mechanism (régime de l’imprévision), in order to preserve the requirements of predictability and legal certainty, as well as France’s attractiveness.
In this case, the issue at stake was the scope of application of unforeseen circumstances to the execution of a promise to sell shares in a French SAS (simplified joint stock company). The French Supreme Court (Cour de cassation) ruled that the QPC transmitted by the Commercial Court of Paris was a serious issue with regard to the principle of equality of all citizen before the law, in that the disputed provision would have the effect of "subjecting the sale of unlisted shares (actions non cotées) and the sale of non-freely transferable shares (parts sociales) to different regimes, on the one hand, and subjecting the sale of shares by mutual agreement (de gré à gré) and transfers of shares on the financial markets to the same regime, on the other hand".6
The claim has been dismissed on the basis of a two-stage reasoning.
Quoting the parliamentary work, the French Conseil Constitutionnel first ruled that the legislator's intent to ensure legal certainty of transactions in financial contracts and securities justifies a difference in treatment, based on a difference in situation with regard to the risk of unforeseeable changes in the valuation of financial instruments. In support of this consideration, the Council emphasized on the fact the transfer of securities issued by joint-stock companies "is characterized by their transferability", unlike the transfer of shares (parts sociales) in partnerships (sociétés de personnes), for which the unforseen circumstances mechanism is intended to apply unless the parties exclude it by agreement.
It additionally considered that since provisions of article L. 211-40-1 apply to all transfers of securities, a difference in treatment between transfers of shares, "depending on whether they take place off market by mutual agreement or on financial markets", is not justified.
Consequently, this decision confirms the exception to the principle of revision for unforeseen circumstances with respect to the sale of shares. It is indeed widespread knowledge that the value of securities, whether listed or not, is inherently volatile, and that the risk of unpredictable developments is ultimately inherent in every transaction. Among the multitude of criteria to be taken into account, the negotiation of the purchase price of the securities indeed relies on the timing of the transaction, between the moment the company's securities are valued and the moment the transfer is completed. Ruling differently would likely have exposed the sale of joint stock companies’ securities to such risk on an almost systematic basis.
Next steps
If you would like to discuss these updates and how they impact transactions and corporate engineering in more detail please do not hesitate to get in touch with a member of our Paris Corporate & Finance team.
Authored by Xavier Doumen and Louis-Nicolas Ricard.
References
1 Cons. Const., 26 mai 2023, n° 2023-1049 QPC
2 Pour mémoire, le rapport au Président sur l’ordonnance mettait en avant cette évolution en soulignant que « la France était l’un des derniers pays d’Europe à ne pas reconnaître la théorie de l’imprévision comme cause modératrice de la force obligatoire du contrat. Cette consécration, inspirée du droit comparé comme des projets d’harmonisation européens, permet de lutter contre les déséquilibres contractuels majeurs qui surviennent en cours d’exécution, conformément à l’objectif de justice contractuelle poursuivi par l’ordonnance ».
3 JCP E 2019, 1185 : Contrats et obligations - La révision judiciaire pour imprévision à l'issue de la loi de ratification de la réforme du droit des contrats Création de l'article L. 211-40-1 du Code monétaire et financier
4 https://publications.banque-france.fr/sites/default/files/rapport_08_f.pdf
5 « L'article 1195 du code civil n'est pas applicable aux obligations qui résultent d'opérations sur les titres et les contrats financiers mentionnés aux I à III de l'article L. 211-1 du présent code. »
6 Cass. Com., 15 mars 2023, n°22-40.023
