In a business-to-business contract setting, France’s Supreme Court, the Cour de cassation, had to assess whether the consent to a service provider price increase granted by buyer under heavy economic pressure was vitiated for cause of duress.
The Court’s decision by judgement dated July 9, 2019 (n°18-12.680) brings greater clarity to the growing number of claims involving economic duress and contract rescission.
The case surrounds a dispute between the French airline Transavia and an MRO, Derichebourg Atis, over a three-year term maintenance services agreement over eight B-737-800s. Derichebourg claimed it has been running losses on the contract and that a price increase was essential to perform the services but Transavia had refused any increase in light of the fixed price for the three year contract.
Derichebourg seized the opportunity of the arrival of new aircrafts (the servicing of which was apparently outside the initial contract scope) to demand from Transavia an overall price increase of 20% in the final year of the three year services agreement. Failing acceptance of the price increase, Derichebourg threatened to refuse servicing the additional aircraft of Transavia forthcoming a few weeks later and to terminate all services for the existing aircraft under contract after a notice period of 60 days. Transavia ultimately assented and signed the price amendment, but subsequently refused to pay the amounts corresponding to the price increase.
Derichebourg sought payment of the amounts corresponding to the price increase, while Transavia objected with a view to rescinding the amendment on the grounds of economic duress.
The Commercial Court of Paris by judgement dated March 3, 2015 ruled in favor of the MRO provider and held Transavia had to pay the full sums as per the contract amendment.
However, on appeal, the Paris Court of Appeals by judgement dated December 20, 2017, held that economic duress was established because the airline had no practical alternative but to agree to the price increase as there was inadequate time to secure maintenance services on the new aircraft from another provider considering that a replacement provider would have to be approved by the French aviation authorities.
The Cour de cassation disagreed and quashed the holding of the Court of Appeals by its judgement dated July 9, 2019.
Referring to the judgment of the Paris Court of Appeals, the French supreme court held “by making such a determination, without indicating how the risk in delaying operations of the single aircraft and the time required to secure a new service provider would have led the airline to breach its contracts and would have entailed economic consequences such that Transavia would be deemed to be in a situation of economic dependency towards Derichebourg compelling the airline to sign the amendment, the Court of Appeals failed to provide a legal basis for its decision.”
The high court is underscoring that the buyer must prove that it is in a state of economic dependency towards the seller and that the seller abused its position to reap undue gain.
With respect to the economic dependency, the threat of ceasing services in 60 days was not alone sufficient. The threat of refusing to service the new aircraft in the coming days was greater, but to prove dependency, it must be demonstrated, according to the Cour de cassation, that no other economic choice on the part of the airline was viable and this was not shown.
This ruling appears fully consistent with the recently revised Article 1143 of the French civil code which provides “there also exists duress when one party, abusing the state of dependency in which its co-contracting party lies, obtains from such party an undertaking that such party would not have made in the absence of such constraint and reaps a manifestly excessive advantage.” Though not in force at the time the dispute, this provision was undoubtedly in the minds of the justices.