Decision n. 464619, 8th March 2023, Council of State, SIPPEREC, classified B, France
Article(s) in Directive 2014/24/EU: Art. 72
Topic: Unilateral modification due to an unlawful clause
Member State: FR
Court/rev. board: Council of State
1. IMPLEMENTATION / RELEVANT NATIONAL LEGISLATION
Art. 72 of Directive 2014/24/EU was implemented by the Code de la commande publique (CCP), Art. L. 2194-1 and specifies that amendments to the contract “made by agreement or, in the case of an administrative contract, by the purchaser unilaterally […] may not change the overall nature of the contract”.
If the decision concerns concessions (CCP, art. L. 3135-1), the solution can be transposed to public procurement.
2. FACTS
In three resolutions of December 16th, 2021, the SIPPEREC’s committee – an intercommunal association comprising nearly one hundred cities in the Ile-de-France region – unilaterally amended the three agreements granting the electricity distribution concession to Enedis. SIPPEREC considered that the clause, in the three concession contracts, providing for a certain amount of compensation for the return of assets in the event of early termination, was illegal, as it was contrary to the principles laid down by the case law of Conseil d’Etat (December 21st, 2012, no. 342788, Commune de Douai). The three resolutions provided that the modifications would be unilateral in the absence of agreement on the draft amendments within two months of their adoption. In the absence of an agreement between SIPPEREC and Enedis, the amendment was therefore unilateral.
The tribunal administratif of Paris and then the cour administrative d’appel of Paris decided in favour of the prefect of Région d’Ile-de-France (that had requested the suspension of these three unilateral amendments), but the Conseil d’Etat annulled the contested decision and referred the case back to the cour administrative d’appel of Paris.
3. JUDGMENT
The Conseil d’Etat does not rule on the legality of the clause, limiting itself to finding an error in law on the decision of the cour administrative d’appel, which ruled “that the unilateral modification of a contract granting a public service cannot be implemented for the sole reason of purging the contract of unlawful stipulations, whereas, as has just been said, the public authority may modify an unlawful clause in order to remedy its irregularity if it is divisible from the rest of the contract”. The Conseil d’Etat then recalls that the public entity may then terminate the contract if the clause is not divisible and “the irregularity which taints the contract is of such gravity that, if it were seized, the contract judge could pronounce its annulment or termination”.
This decision is part of a certain continuity in case law. It has already been admitted that a public entity may terminate a contract “tainted by an irregularity of such gravity that, if it were seized, the contract judge could pronounce its cancellation or termination”, subject to the requirement of fairness in contractual relations (CE, July 10th, 2020, no. 430864, Société Comptoir Négoce équipement). It then admitted that a public entity may set aside, for the future, a clause that considers illegal (CE, June 13th, 2022, no. 453769, Centre hospitalier d’Ajaccio). The decision SIPPEREC takes another step forward and raises questions.
Recognising that such power to terminate or modify a contract to a single party on the grounds of illegality cannot be part of the power to terminate or modify on grounds of public interest: while it is logical to entrust only the public authority with the assessment of a genuine ground of public interest, under the control of the judge, justifying a termination or modification, it is much more questionable when it comes to making an assessment, which is inevitably subjective, of the legality of a clause or a contract. In French Law, it could be argued that the administrative authorities have the power to withdraw or abrogate unilateral administrative acts that create rights. They can do so, but only within a period of four months, and the difference with the contract is obvious since… they are the only ones to adopt this act. In a way, the co-contractor of public persons is now much less protected than the beneficiary of a unilateral administrative act adopted more than four months ago: he may see his contract terminated, or one of its clauses set aside or modified, on the sole ground of its alleged illegality. This is a considerable power entrusted to public persons, who might be tempted to set aside or modify clauses whose illegality seems conveniently linked to their unfavourable character. As for the assessment of divisibility, it could, once again, be opportunely affirmed… or not if one wished to put an end to the contractual relationship. Without seeing evil everywhere, one can also consider that this assessment is eminently subjective, as in the SIPPEREC case: a financial clause, activated moreover in the event of early termination, may at first sight appear divisible, but when one knows the weight of financial clauses on the commitments of lenders, this becomes very debatable.
One may be surprised that the assessment of this illegality is not made, contrary to termination, subject to the respect of loyalty of contractual relations. One would like to believe that this is a simple oversight, and that the public entity could not invoke any illegality of a clause, even one that it clearly initiated. Lastly, one observation must be made, and a question remains concerning the right to the financial equilibrium of the contract. In the first place, this does not apply to financial clauses or at least to clauses that provide for compensation that could be deemed excessive in the eyes of an administrative judge: by hypothesis, this downward compensation cannot be compensated by an indemnity. Secondly, and above all, one may wonder whether it would not be necessary to enter the reasoning of a possible sharing of responsibility in the event of prejudice linked to an illegal clause, as recalled in the Société Comptoir Négoce équipement case law on unilateral termination. There are therefore many unknowns and concerns when reading this new power granted to public persons.
It could be argued that, of course, all this is done under the very protective control of the judge. But, in the current French Law, this control of the unilateral modification (and of any unilateral decision relating to the execution of an administrative contract) only intervenes under the indemnity angle – the judge sticking to this position since the Goguelat case (CE, February 20th, 1868, n° 39761), reiterated in 1983 (CE, Section, December 9th, 1983, SA d’études de participations et de développement, n° 34607), then in 2017 (CE, November 15th, 2017, Société Les fils de Mme Géraud, n° 402794), despite the exception introduced, as regards unilateral termination, by the Béziers II case law in 2011.
This is probably the problem and the reason why the rapporteur public did not call for such a change in the case law: the absence of an action for annulment in the hands of the co-contractor cannot really be compensated for either by the possibility of triggering a remedy provoked – since this only concerns local authority contracts and the Prefect is free to decide whether or not to follow up on it –, nor by the action for damages. There may be situations where the unilateral amendment will not necessarily result in damage, but does have a significant impact on the co-contractor. The current case provides a first example: it might be difficult to detect a prejudice, since the modified clause will only come into play in the event of early termination – which remains hypothetical at this stage, just like the prejudice.
Does this mean that it has no impact on the contract? It is conceivable that the potential lender of a concession, or other administrative contract, might consider that such a change would have a significant adverse effect, as it is often provided for in the terms of a loan agreement, leading to an obligation of early repayment. Will it be possible to argue that there is a real prejudice, or could the public person and then the judge consider that there was no such “significant adverse effect” and therefore there is no prejudice?
The interest of opening an action for annulment would be real, even though the annulment of the unilateral modification of a clause could take years, since suspension will be difficult to obtain in the absence of urgency in general: the mere opening of such an action, which could be limited to modification on the grounds of illegality in view of what has been said above, would present a sufficiently high risk in terms of retroactivity to lead the public person to think twice before contemplating a unilateral modification.
Pending this further step, such possibility of unilateral amendment should lead the private party to be more vigilant about possible illegalities in the clauses as early as the phase of finalising the contract, so as not to open the possibility of a unilateral amendment. However, this would obviously not protect against an illegality caused after signature, such as a change in regulations.
