untitled

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 1 27-FEB-18 13:19

A Civilian Perspective on Network

Contracts and Privity

Matthias E. Storme*

BSTRACT

In order to contribute to the debate on the “edges of contract law,” espe-

cially on the value of the privity rule in an age of network contracts and shar-

ing economy, this Essay analyzes some approaches and solutions chosen by

continental or civil law systems of private law. It mainly deals with the effects

of chains of (in principle bilateral) contracts and more specifically the effect in

one relationship of the fact that a contracting partner also has a contract with a

third party. First, this Essay studies the effects in a first contractual relation-

ship, of other contracts concluded by one of the parties in the first one (inter-

nal liability). Second, it discusses some ways in which persons may acquire

rights or be burdened by duties from a contract to which they were not a party,

and privity is thus “extended” (paying attention inter alia to assignment, con-

tracts for the benefit of a third party, and so-called “direct actions”). Finally, it

touches upon some aspects of tort law specifically relevant to chains or net-

works of contracts.

ABLE OF

ONTENTS

NTRODUCTION

................................................. 1740

I. I

NTERNAL

IABILITY

ETWEEN

ONTRACTING

ARTIES

................................................. 1742

A. Performance Entrusted to Another .................. 1742

1. The Basic Rule: Liability in Chains of

Contracts ....................................... 1742

2. Stars Treated as Chains: Linking of Separate but

Related Contracts .............................. 1744

a. Passive Linking of Contracts ................ 1745

b. Active Linking of Contracts ................. 1748

c. Chains Treated as Stars ..................... 1750

d. Recourse .................................... 1752

B. The Effects of Undisclosed Agency.................. 1753

C. Information from or Advertising by Earlier Links of

the Business Chain .................................. 1753

* Full professor (ord.), Chair of Commercial and Insolvency Law, KU Leuven (Belgium).

All Figures are lightly modified versions of those designed by myself and used in earlier publica-

tions, first in The Structure of the Law on Multiparty Situations in the Draft Common Frame of

Reference, 14

URIDICA

’

78 (2008), http://www.juridicainternational.eu/public/pdf/ji_2008_1

_78.pdf.

November 2017 Vol. 85 No. 6

1739

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 2 27-FEB-18 13:19

1740 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

II. E

XTENDING

RIVITY

: T

HIRD

ERSONS AS

ARTIES TO A

ONTRACTUAL

BLIGATION

............................ 1755

A. What Privity Means and What It Does Not in

Continental Civil Law ............................... 1755

B. Defenses in General ................................. 1757

C. Types of So-Called “Direct (Contractual) Actions” . . 1760

1. Direct Actions as Suretyship.................... 1761

2. Acquisition of Rights as Accessory to a Thing

Acquired ....................................... 1762

3. Unilateral Takeover by an Undisclosed

Principal ........................................ 1766

D. Direct Actions as Security Rights .................... 1767

1. Liability Insurance .............................. 1768

2. Subcontractors .................................. 1769

3. Analogy with a Pledge of Receivables .......... 1770

E. Rights Only Acquired in Cases Where Obligations

Are Taken Over as Well; Obligations Running With

Ownership .......................................... 1771

F. The Case of Forum and Arbitration Clauses ........ 1772

III. E

FFECTS IN

ORT

.................................. 1774

A. Expanding Tort Law ................................ 1774

B. Restricting Tort Law by the Doctrine of

Non-Cumul ......................................... 1774

C. Other Immunities in Tort ........................... 1775

ONCLUSION

................................................... 1776

NTRODUCTION

In a panel of the Symposium on “Divergence and Reform in the

Common Law of Contracts,” I was asked to contribute to the debate

on the “edges of contract law,” especially on the value of the privity

rule in an age of network contracts and the share economy, in which

users may sign up for a service with one party but have a third party

ultimately perform that service. I offer some approaches, ways of

thinking, and solutions chosen by continental or civil law systems of

private law.

There are many limits to such an essay, and I would like to ac-

knowledge at least some of them (other than the limits of my own

knowledge) as a trigger warning. This contribution mainly deals with

the effects of chains of (usually bilateral) contracts and more specifi-

cally the effect on one relationship of the fact that a contracting part-

ner also has a contract with a third party. I am not dealing with the

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 3 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1741

organization of networks by means other than contracts, such as cor-

porations, partnerships, associations, and different forms of co-owner-

ship. I am also not dealing with trusts and trust-like arrangements,

although I am well aware that some of the functions of the institutions

mentioned below are served by trust law in common law countries

(e.g., some functions of contracts stipulating a benefit for a third

party). I will touch upon effects in insolvency only marginally (as a

professor in insolvency law I cannot wholly avoid it), and the same is

true for the important topic of restitution or enrichment law. I am

dealing neither with questions of labor law nor with the role of net-

work effects in competition law, and only marginally with contracts of

carriage (transport law).

Second, as to the sources and materials, there is no uniform civil

law on many of these topics. I will refer to European Union (“EU”)

law where it does say something on a topic, but most of the law in this

area is state law (national law). Next to the common law systems (En-

gland and Wales, Ireland), there are at least twenty-eight systems of

contract law in the EU (counting Scotland and Catalonia),

and I am

not going to give a full comparative overview, but rather do a lot of

cherry-picking, selecting mainly those rules and institutions that devi-

ate from a strict rule of privity of contract, but also indicating some of

the more important divergences among civil law jurisdictions in this

field.

I will also refer to the Principles, Definitions and Model Rules

of European Private Law: Draft Common Frame of Reference

(“DCFR”), drafted as a kind of restatement of the law of contract,

tort, restitution, and property.

Third, English is neither my native language nor a native lan-

guage in any of the continental legal systems featuring in this contri-

bution. I may use gender indications in ways that differ from

American usage or politeness. The terminology I use attempts to

See infra Section I.A.1.

See

ECTOR

L. M

UEEN

, A

NTONI

AQUER

& S

ANTIAGO

SPIAU

, R

E-

GIONAL

RIVATE

AW AND

ODIFICATION IN

UROPE

(2003).

See infra Part II.

TUDY

ON A

UROPEAN

IVIL

ODE

& R

ESEARCH

EC P

RIVATE

CQUIS

RINCIPLES

, D

EFINITIONS AND

ODEL

ULES OF

UROPEAN

RIVATE

RAFT

OMMON

RAME OF

EFERENCE

(DCFR)

(Christian von Bar, Eric Clive & Hans

Schulte-N ¨olke, and Hugh Beale, Johnny Herre, J ´er ˆome Huet, Peter Schlechtriem†, Matthias

Storme, Stephen Swann, Paul Varul, Anna Veneziano & Fryderyk Zoll eds., 2009), http://

ec.europa.eu/justice/contract/files/european-private-law_en.pdf [hereinafter DCFR]. I was a

member of some of the working groups and of the final redaction team. The drafters followed

the model of the Restatements of the American Law Institute (“ALI”), but this does not mean

the DCFR has the same role or authority as an ALI Restatement.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 4 27-FEB-18 13:19

1742 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

render into the English language concepts and rules from

non–common law systems that often do not have a substantial

equivalent in common law terminology; I try to stay close to the termi-

nology in the DCFR by using, for example, “right to performance”

instead of “claim,” “termination” of contractual relationship, “debtor”

rather than “obligor,” “creditor” rather than “obligee,” “movables,”

etc.

Within these limits, I will first address, in Part I, the effect, in the

internal relationship between contracting parties, of other contracts

concluded by one of those parties. In Part II, I will discuss how per-

sons may acquire rights or be burdened by duties from a contract to

which they were not a party. Finally, in Part III, I will deal very briefly

with some aspects of tort law specifically relevant to chains or net-

works of contracts, including the effects in tort law of the fact that the

damage is related to the nonperformance of a contractual obligation.

I. I

NTERNAL

IABILITY

ETWEEN

ONTRACTING

ARTIES

This Part discusses in A the traditional rules on liability for per-

formance entrusted to another and its variations in contemporary civil

law, including the rules on linked contracts. It continues with two

more specific cases of liability, namely indirect representation (corre-

sponding—to some extent—to undisclosed agency) (B) and liability

from information by earlier links in the business chain (C). Due to the

limits of this contribution, discussed above, this Part will not discuss

the related question of whether (apart from the case of undisclosed

agency) a party is entitled to claim compensation for damage caused

by the defendant to a linked third party.

A. Performance Entrusted to Another

1. The Basic Rule: Liability in Chains of Contracts

The starting point is the same in essentially all systems of contract

law, namely that a debtor of a contractual obligation is liable for non-

performance by a third person to whom performance was entrusted or

delegated. We find it in DCFR Article III.-2:106,

in the Restatement

(Second) of Contracts at section 18,

and indirectly in the United Na-

Id. art. III.–2:106 (“A debtor who entrusts performance of an obligation to another

person remains responsible for performance.”).

ESTATEMENT

ECOND

)

ONTRACTS

§ 318 (

. L

NST

1981) (“Unless the obli-

gee agrees otherwise, neither delegation of performance nor a contract to assume the duty made

with the obligor by the person delegated discharges any duty or liability of the delegating

obligor.”).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 5 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1743

tions Convention on Contracts for the International Sale of Goods

(“CISG”) at Article 79(2).

The rule is wider than delegation of per-

formance in a strict sense: a debtor remains liable for nonperformance

if he cannot deliver goods or services because they are not delivered

by his own supplier or service provider. In that sense, it is a rule on

“chains” of contracts.

Insofar as mandatory provisions of law do not prevent the debtor

from stipulating an exemption of liability for his own nonperform-

ance, he can, a fortiori, stipulate an exemption of liability for nonper-

formance by such third person. There is one question that may,

however, arise as to a debtor who is in principle prevented by

mandatory provisions of law from stipulating an exemption of liability

for his own nonperformance. Can he nevertheless do so for the non-

performance of a third party in exchange for an assignment to the

creditor of one’s rights against that third party? The question has

arisen, for example, in relation to financial leasing in jurisdictions

where there are limitations to exemption clauses in lease contracts.

The lessor will normally stipulate that he is not liable for any noncon-

formity in relation to the equipment and, in exchange, either assign to

the lessee its rights against the supplier or stipulate from the supplier

that he owes obligations in relation to the equipment directly to the

lessee;

but in most continental jurisdictions, the liability of a lessor of

movables is not mandatory anyway,

except in consumer contracts.

This first case must be distinguished from cases where the rule

does not apply because the contracting party did not promise the per-

formance itself to the buyer or client, but merely promised to contract

with a third party as an agent of the buyer or client or merely inter-

vened to assist the buyer or client to find a supplier or service provider

and contract with that supplier or service provider. This frequently

happens in cases where a seller does not promise to deliver the goods

to the buyer, but merely to contract with an independent carrier who

will be liable to the buyer according to the terms of the contract of

carriage (in many consumer contracts, however, a seller may be

mandatorily obliged to deliver the goods to the consumer and cannot

United Nations Convention on Contracts for the International Sale of Goods art. 79(2),

Apr. 11, 1980, 1489 U.N.T.S. 3 [hereinafter CISG].

In some jurisdictions or instruments, such an arrangement is the default rule. See, e.g.,

Unidroit Convention on International Financial Leasing arts. 8 (1

), 10, 12, May 28, 1988, 2321

U.N.T.S. 195.

See, e.g., Hof van Cassatie [Cass.] [Court of Cassation], June 17, 1993, No. 9405 (Belg.),

http://jure.juridat.just.fgov.be/view_decision.html?justel=N-19930617-8.

E.g., DCFR, supra note 4, art. IV.B.–1:104. R

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 6 27-FEB-18 13:19

1744 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

contract out of this obligation by delegating it to an independent car-

rier). According to classical contract law, there is no chain of con-

tracts, but a “star”

: the client or buyer has separate but related

contracts with different parties. Contemporary contract law in many

continental jurisdictions often deviates from this classical rule, espe-

cially in consumer contracts, as I will summarize in Section I.A.2.

Also, as discussed in Section B, continental civil law differs from

the common law tradition in that this classical rule does not normally

apply in cases of “indirect representation,” i.e., where the intermedi-

ary concludes a contract with a service provider or seller in its own

name, even if for the account of a principal and even if the name of

the principal is disclosed, or vice versa. The triangle is treated as a

chain. The intermediary will then be liable for nonperformance (non-

delivery of goods or services) only when he acts—within the scope of

his authority—in the name of his principal, thus establishing from the

beginning a direct contractual relationship between the principal and

the third party.

Insofar as the third party agrees, this may neverthe-

less also be a contract in the name of a principal to be named later.

is thereby also perfectly possible that a service provider is undertak-

ing, on the one hand, to provide certain services himself and, on the

other hand, merely to act as an intermediary for other services. As to

the latter, he will only be liable if he breaches his obligations as an

agent (inter alia, negligence as to the advice given, the choice of the

third party, etc.).

On the other hand, in some cases, to be discussed

in Section I.B, a contracting party cannot escape liability in contract

by stipulating that he will merely act as an agent for the buyer or cli-

ent in order to delegate the provision of goods or services to a third

party. Inversely, the main rule may also not apply in certain cases be-

cause the subcontractor or supplier was imposed by the client or

buyer. I will come back to these exceptions under Section I.A.3.

2. Stars Treated as Chains: Linking of Separate but Related

Contracts

Contemporary EU law and, more generally, continental contract

law have developed a number of devices whereby formally separate

I borrow the images of stars, triangles, and chains from Stefan Grundmann, Contractual

Networks in German Private Law, in

ONTRACTUAL

ETWORKS

, I

NTER

-F

IRM

OOPERATION

AND

CONOMIC

ROWTH

111, 114 (Fabrizio Cafaggi ed., 2011).

See DCFR, supra note 4, art. II.–6:105. R

But cf. id. art. II.–6:108 (noting that failure to reveal identity of principal can result in

personal liability for intermediary).

See, for example, the obligation of skill and care of an agent. Id. art. IV.D.–3:103.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 7 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1745

contracts are nevertheless linked in such a way that the fate of one

contract is linked to the fate of another, and in some cases also to the

extent that one of the contracting parties is liable for a nonperform-

ance under another contract to which it is not a party, if it has organ-

ized or facilitated the conclusion of that other contract.

a. Passive Linking of Contracts

When I say that “the fate of one contract is linked to the fate of

another,” this refers to the following effects: a) one contract will only

come into effect if a linked contract also comes into effect or b) where

a party validly withdraws from or avoids or terminates one contract,

this implies a withdrawal from, avoidance of, or termination of the

linked contract as well, or at least entitles that party to also withdraw

from, avoid, or terminate the linked contract. Such a link may have

been explicitly or impliedly agreed by the parties, or may apply by

virtue of law (often mandatory law, at least in consumer contracts).

Parties may link the fate of one contract to the fate of another by

stipulating conditions precedent (suspensive conditions) or subse-

quent (resolutive conditions).

Contracts for the sale of land are fre-

quently concluded under the suspensive condition that the buyer

obtains a credit contract as well as under other suspensive conditions

(not necessarily requiring the conclusion of another contract).

It is,

in such a case, relevant to find out whether the condition is stipulated

for the benefit of one of the parties only or for the benefit of both; in

the first case, that party can waive the condition in order to give effect

to the contract.

It is also a default rule in civil law systems that the

fulfillment or nonfulfillment of a condition is set aside if it was caused

by a party interfering with events contrary to the requirements of

See, e.g., Carole Aubert de Vincelles, Linked Contracts Under French Law, in

ONTRAC-

TUAL

ETWORKS

, I

NTER

-F

IRM

OOPERATION AND

CONOMIC

ROWTH

, supra note 11, at 163, R

163–64. The definition of “condition” in section 224 of the Restatement (Second) of Contracts

corresponds basically to what is a suspensive condition in continental civil law. Compare DCFR,

supra note 4, art. III.–1:106(1), with

ESTATEMENT

ECOND

)

ONTRACTS

§ 224 (

. L

NST

1981). There are, however, clearly some differences as to the way in which conditions

function in continental civil law of obligations on the one hand and classical common law of

contract on the other (I refer to the traditional common law distinction between conditions,

terms, and warranties which does not exist in civil law).

See Aubert de Vincelles, supra note 15, at 164. R

See, e.g., Cour de Cassation [Cass.] [Court of Cassation], June 30, 2016,

ECHTSKUNDIG

EEKBLAD

[RW] 2016–17, 1535 (Belg.) (annotated by Sanne Jansen), http://jure.juridat.just.fgov

.be/view_decision.html?justel=N-20160630-17. A comparable approach in American law is

presented in 13

AMUEL

ILLISTON

& R

ICHARD

A. L

ORD

A T

REATISE ON THE

AW O F

ON-

TRACTS

§ 39:17 (4th ed. 2013).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 8 27-FEB-18 13:19

1746 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

good faith (e.g., by not making the required efforts to obtain a

credit);

further, it is wise for the parties to determine within which

period of time a condition must be fulfilled or efforts have to be made.

I will not enter into details on these questions.

The fate of one contract can also be linked to the fate of another

by virtue of law. Such legal rules are, to a large extent, a reaction to

developments in business practice that have increasingly blurred the

difference between chains and stars of contracts. On the one hand,

market participants are trying to minimize or shift risks by splitting up

or reorganizing contracts in order to avoid the traditional rule of lia-

bility for upstream nonperformance. On the other hand, they try to

obtain the benefits of networking between formally independent con-

tracts without also taking responsibility for partners in such

networks.

European consumer law directives have responded by, among

other things, extending the effect of a withdrawal or termination by

the consumer to the linked contract. This is true of the Consumer

Credit Directive,

the Consumer Rights Directive,

and the Package

Travel Directive.

First, in the Consumer Credit Directive, the rule

applies to “linked credit agreement[s],” defined in Article 3(n) as

credit agreements where:

(i) the credit in question serves exclusively to finance an

agreement for the supply of specific goods or the provision

of a specific service, and

(ii) those two agreements form, from an objective point of

view, a commercial unit; a commercial unit shall be deemed

to exist where the supplier or service provider himself fi-

nances the credit for the consumer or, if it is financed by a

third party, where the creditor uses the services of the sup-

See DCFR, supra note 4, art. III.–1:106(4). R

See supra Section I.A.1.

Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008

on Credit Agreements for Consumers and Repealing Counsel Directive 87/102/EEC, 2008 O.J.

(L 133) 66, http://data.europa.eu/eli/dir/2008/48/oj [hereinafter Council Directive 2008/48].

Directive 2011/83/EU of the European Parliament and of the Council of 25 October

2011 on Consumer Rights, Amending Council Directive 93/13/EEC and Directive 1999/44/EC of

the European Parliament and of the Council and Repealing Council Directive 85/577/EEC and

Directive 97/7/EC of the European Parliament and of the Council, 2011 O.J. (L 304) 64, http://

data.europa.eu/eli/dir/2011/83/oj [hereinafter Council Directive 2011/83].

Directive (EU) 2015/2302 of the European Parliament and of the Council of 25 Novem-

ber 2015 on Package Travel and Linked Travel Arrangements, Amending Regulation (EC) No

2006/2004 and Directive 2011/83/EU of the European Parliament and of the Council and Re-

pealing Council Directive 90/314/EEC, 2015 O.J. (L 326) 1, http://data.europa.eu/eli/dir/2015/

2302/oj [hereinafter Council Directive 2015/2302].

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 9 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1747

plier or service provider in connection with the conclusion or

preparation of the credit agreement, or where the specific

goods or the provision of a specific service are explicitly

specified in the credit agreement.

Second, in the Consumer Rights Directive, the rule applies to “ancil-

lary contracts,” defined as contracts “by which the consumer acquires

goods or services related to a distance contract or an off-premises con-

tract and where those goods are supplied or those services are pro-

vided by the trader or by a third party on the basis of an arrangement

between that third party and the trader.”

Third, in cases of separate

contracts with individual travel service providers, the Package Travel

Directive distinguishes between “packages” where these contracts are

fully linked and forming a whole and merely “linked travel arrange-

ments” where online or High Street traders facilitate the procurement

of travel services by leading the traveler to form contracts with differ-

ent travel services providers, including through linked booking

processes that do not contain the features of a package.

Linked

travel arrangements are distinguished from

websites which do not have the objective of concluding a

contract with the traveller and from links through which

travellers are simply informed about further travel services

in a general way, for instance where a hotel or an organiser

of an event includes on its website a list of all operators of-

fering transport services to its location independently of any

booking or if “cookies” or meta data are used to place adver-

tisements on websites.

In cases where separate contracts are merely “linked” but not a pack-

age, the effect of the resulting linking is, by virtue of law, very limited.

The service provider merely has to protect the traveler in the case of

Council Directive 2008/48, supra note 20, art. 3(n). R

Council Directive 2011/83, supra note 21, art. 15 (rule); id. art. 2(15) (definition of ancil- R

lary contract); see Aubert de Vincelles, supra note 15, at 163, 166–68 (interpreting the meaning R

of “ancillary contracts”).

Council Directive 2015/2302, supra note 22, Recital 9. The definition of “linked travel R

arrangement” is found in Council Directive 2015/2032, art. 3(5). A linked travel arrangement

occurs where

a trader facilitates: (a) on the occasion of a single visit or contact with his point of

sale, the separate selection and separate payment of each travel service by travel-

lers; or (b) in a targeted manner, the procurement of at least one additional travel

service from another trader where a contract with such other trader is concluded at

the latest 24 hours after the confirmation of the booking of the first travel service.

Id.

Id. Recital 12.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 10 27-FEB-18 13:19

1748 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

insolvency of the other service provider.

In the case of a package, the

trader organizing the package is in principle liable for nonperform-

ance under any of the contracts forming the package.

These rules have been restated in the DCFR Article II.-5:106,

where the effects of a withdrawal are extended to linked contracts as

defined in paragraph two:

Where a contract is partially or exclusively financed by a

credit contract, they form linked contracts, in particular:

(a) if the business supplying goods, other assets or services

finances the consumer’s performance; (b) if a third party

which finances the consumer’s performance uses the services

of the business for preparing or concluding the credit con-

tract; (c) if the credit contract refers to specific goods, assets

or services to be financed with this credit, and if this link

between both contracts was suggested by the supplier of the

goods, other assets or services, or by the supplier of credit; or

(d) if there is a similar economic link.

Other examples can be found in Member State law relating to busi-

ness contracts with small businesses as in France, for example, where

termination of one contract entails termination of linked contracts,

with the exception of contracts for the leasing of the premises.

Where contracts are linked in such a way that the effect of a with-

drawal or termination by the consumer is extended to the linked con-

tract, this normally also implies that the consumer may raise defenses

based on the first contract against the creditor of the linked contract

(especially the right to suspend performance of payment under the

credit contract in case of nonconformity of the goods or services under

the linked contract).

b. Active Linking of Contracts

In some cases, separate contracts are linked by making at least

one of the business parties to the different contracts liable for a non-

See id. art. 19.

See id. art. 13.

DCFR, supra note 4, art. II.–5:106. R

See

ODE DE COMMERCE

[C.

COM

.] [C

OMMERCIAL

ODE

]

art. L341-1 (Fr.), as inserted

by the so-called Loi-Macron, Loi 2015-990 du 6 ao ˆut 2015 pour la croissance, l’activit ´e et l’ ´egalit ´e

des chances ´economiques [Law 2015-990 of August 6, 2015 for Growth, Activity, and Equal

Economic Opportunities],

OURNAL

FFICIEL DE LA

EPUBLIQUE

RAN ¸CAISE

[J.O.] [

FFICIAL

AZETTE OF

RANCE

], Aug. 7, 2015, p. 13537, https://www.legifrance.gouv.fr/affichTexte.do?cid

Texte=JORFTEXT000030978561&categorieLien=id.

See DCFR, supra note 4, art. II.–5:106 cmt. D. R

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 11 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1749

performance under the linked contract to which it is not a party.

This

is the case where travel services under separate contracts are consid-

ered to form a single package.

It is, to some extent, found in the

Consumer Credit Directive, but the Directive leaves the specific rules

to Member State law. It states:

(2) Where the goods or services covered by a linked credit

agreement are not supplied, or are supplied only in part, or

are not in conformity with the contract for the supply

thereof, the consumer shall have the right to pursue reme-

dies against the creditor if the consumer has pursued his

remedies against the supplier but has failed to obtain the sat-

isfaction to which he is entitled according to the law or the

contract for the supply of goods or services. Member States

shall determine to what extent and under what conditions

those remedies shall be exercisable.

(3) This Article shall be without prejudice to any national

rules rendering the creditor jointly and severally liable in re-

spect of any claim which the consumer may have against the

supplier where the purchase of goods or services from the

supplier has been financed by a credit agreement.

This more radical solution can also be found in national rules that

prohibit certain sellers or service providers from shifting the liability

for part of a package to a third party by stipulating that they will con-

clude the contract with that third party (subcontractor) as an agent for

the client or buyer. An example is the Belgian statute on contracts for

residential construction: whenever a contractor promises to procure

residential dwellings and the contract stipulates any payment before

the dwelling is finished, a mandatory set of rules applies and the con-

tractor will be liable for the result without any possibility of discharg-

ing this liability by delegating the performance or part of it to third

parties.

This is somewhat similar to the rules on travel packages.

Such a solution is also found in the recent expert group proposal, Dis-

See DCFR, supra note 4, art. II.–5:106. R

See Council Directive 2015/2302, supra note 22, art. 3(2). R

Council Directive 2008/48, supra note 20, art. 15(2)–(3). R

See Loi r ´eglementant la construction d’habitations et la vente d’habitations `a construire

ou en voie de construction (mise `a jour au 19-06-1993) [An Act to Regulate the Construction of

Dwellings and the Sale of Dwellings to Be Erected or Under Construction] of July, 9 1971,

ONITEUR

ELGE

[M.B.] [Official Gazette of Belgium], Sept. 9, 1971, 10442, as amended by Act

of May 3, 1993,

ONITEUR

ELGE

[M.B.] [Official Gazette of Belgium], June 19, 1993, 14999,

www.ejustice.just.fgov.be/eli/loi/1971/07/09/1971070904/justel.

See Council Directive 2015/2302, supra note 22, Recitals 22–23. R

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 12 27-FEB-18 13:19

1750 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

cussion Draft of a Directive on Online Intermediary Platforms.

Ac-

cording to Article 16, “A platform operator who presents itself to

customers and suppliers as intermediary in a prominent way is not

liable for non-performance under supplier-customer contracts.”

However, he may be liable “to customers who can reasonably rely on

the predominant influence of the platform operator over suppliers

under Art. 18.”

Article 18(2) then states:

When assessing whether the customer can reasonably rely on

the platform operator’s predominant influence over the sup-

plier, the following criteria are to be considered in particular:

(a) The supplier-customer contract is concluded exclusively

through facilities provided on the platform;

(b) The platform operator can withhold payments made by

customers under supplier-customer contracts;

tially determined by the platform operator;

(d) The price to be paid by the customer is determined by

the platform operator;

(e) The platform operator provides a uniform image of sup-

pliers or a trademark;

(f) The marketing is focused on the platform operator and

not on the suppliers;

(g) [OPT:] The platform operator promises to monitor the

conduct of suppliers.

c. Chains Treated as Stars

On the other hand, we also find rules precisely discharging a main

contractor for nonperformance by a subcontractor where the subcon-

tractor or supplier was imposed by the client, even where the main

contractor did not contract with the subcontractor as an agent for the

client.

The client will then in principle have a claim only against the

subcontractor itself. The precise rules in the various civil law jurisdic-

tions are not always clear and not fully uniform, therefore I will limit

myself to the restatement of rules for service contracts and financial

leasing in the DCFR.

Research Grp. on the Law of Digital Servs., Discussion Draft of a Directive on Online

Intermediary Platforms, 5 J

. E

. C

ONSUMER

& M

. L.

164 (2016), https://ssrn.com/abstract=28

21590.

Id. at 167.

Id.

Id. at 168 (brackets in original).

See, e.g., Hof van Cassatie [Cass.] [Court of Cassation], June 17, 1993,

o. 9405 (Belg.).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 13 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1751

As to financial leasing, the DCFR states: “The lessee has no right

to enforce performance by the lessor, to reduce the rent or to damages

or interest from the lessor, for late delivery or for lack of conformity,

unless non-performance results from an act or omission of the

lessor.”

This requires that the lease contract meets certain require-

ments, including the requirement that “the lessor, on the specifica-

tions of the lessee, acquires the goods from a supplier selected by the

lessee” and that “the lessee, in providing the specifications for the

goods and selecting the supplier, does not rely primarily on the skill

and judgement of the lessor.”

The rule is thus restricted to financial

leasing. Such a rule is found as a default rule for financial leasing in

some civil law jurisdictions; in others, it corresponds to the standard

contractual practice, at least in business-to-business contracts.

A rule with a more general scope is found in DCFR Article

IV.C.–2:104(4), as its scope covers all service contracts. It states that

“[i]n so far as subcontractors are nominated by the client or tools and

materials are provided by the client, the responsibility of the service

provider is governed by IV.C.–2:107 (Directions of the client) and

IV.C.–2:108 (Contractual obligation of the service provider to warn),”

whereas Article IV.C.–2:107(2) states that

[i]f non-performance of one or more of the obligations of the

service provider . . . is the consequence of following a direc-

tion which the service provider is obliged to follow under

paragraph (1), the service provider is not liable under those

Articles, provided that the client was duly warned under

IV.C.–2:108 (Contractual obligation of the service provider

to warn).”

The same question arises in a contract of sale when the goods

must be procured by a third-party supplier agreed upon by the parties

(nominated in the contract) and the supplier does not supply the

goods to the seller without any negligence of the seller itself. There is

a tendency to judge that the seller in such a case is not liable for non-

performance by the supplier, but only for his own negligence if he has

not taken sufficient care in trying to obtain the goods from that

supplier.

DCFR, supra note 4, art. IV.B.–4:104 (Remedies to be directed towards supplier of the R

goods).

Id.

The rule is similar to Article 8.1(a) of the Unidroit Convention on International Finan-

cial Leasing, supra note 8. R

DCFR, supra note 4, arts. IV.C.–2:104, 2:107. R

For English law, see Societe Co-operative Suisse des Cereales et Matieres Fourrageres v.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 14 27-FEB-18 13:19

1752 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

d. Recourse

In general, there is a right of recourse of the liable intermediary

contractor towards the supplier or subcontractor. But this is typically

not harmonized among the laws of the EU Member States, as we see

in the Directive on Certain Aspects of the Sale of Consumer Goods

and Associated Guarantees

or in the Directive on Payment Services

in the Internal Market.

Recourse may be barred by an exemption

clause stipulated upstream (by a supplier or subcontractor, including a

carrier) in cases where the main contractor is mandatorily liable (es-

pecially towards consumers), a so-called “pinched intermediary,” un-

less statutory rules protect the small business intermediary by setting

aside such clauses in these cases.

La Plata Cereal Co. S.A. [1947] 80 Lloyd’s List LR 530 (Eng.), discussed by

EIL

NDREWS

ONTRACT

§ 16.11 (2d ed. 2015). Under CISG Article 79, the rule is not very clear; the

doctrine mainly deals with the cases where there is only a single possible supplier. See

ETER

CHLECHTRIEM

& I

NGEBORG

CHWENZER

OMMENTARY ON THE

UN C

ONVENTION ON THE

NTERNATIONAL

ALE OF

OODS

(CISG)

art. 79, § 27, at 1074 (Ingeborg Schwenzer ed., 3d ed.

2010) (“In case of a sale . . . from a particular batch or stock, the seller . . . only bears the risk of

being able to procure goods from that batch or stock.”);

CISG A

DVISORY

OUNCIL

, O

PINION

. 7

, cmt. 18

http://www.cisgac.com/cisgac-opinion-no7/ [https://perma.cc/GE9D-2DL6] (deal-

ing with suppliers or subcontractors: “An exception should be allowed, however, for those very

exceptional cases in which the seller has no control over the choice of the supplier or its perform-

ance, in which case the supplier’s default may be established as a genuine impediment beyond

the control of the seller.”); id. cmt. 20 (dealing genuinely independent third person: “[T]he

seller’s liability is not unconditional, for in exceptional cases he may be able to establish that he

had no control over the choice of such third person, either because the third person enjoys a

monopoly in the supply of goods or services, or if the third person was chosen by the

buyer . . . .”).

Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on

Certain Aspects of the Sale of Consumer Goods and Associated Guarantees, art. 4, 1999 O.J. (L

171) 12, 15 (“Where the final seller is liable to the consumer because of a lack of conformity

resulting from an act or omission by the producer, a previous seller in the same chain of con-

tracts or any other intermediary, the final seller shall be entitled to pursue remedies against the

person or persons liable in the contractual chain. [T]he person or persons liable against whom

the final seller may pursue remedies, together with the relevant actions and conditions of exer-

cise, shall be determined by national law.”) For an implementation in Member State law, see, for

example,

ODE

IVIL

[C.C

] art. 1649sexies (Belg.); and

URGERLICHES

ESETZBUCH

[BGB]

[

IVIL

ODE

], § 478, para. 1, translation at https://www.gesetze-im-internet.de/englisch_bgb/en-

glisch_bgb.html#p1694 (Ger.).

Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 Novem-

ber 2015 on Payment Services in the Internal Market, Amending Directives 2002/65/EC, 2009/

110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and Repealing Directive 2007/64/

EC, art. 87, 2015 O.J. (L 337) 15, http://data.europa.eu/eli/dir/2015/2366/oj.

E.g.,

ODE

IVIL

[C.C

] art. 1649sexies (Belg.);

URGERLICHES

ESETZBUCH

[BGB]

[

IVIL

ODE

], § 478, para. 4, translation at https://www.gesetze-im-internet.de/englisch_bgb/en-

glisch_bgb.html#p1694 (Ger.).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 15 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1753

B. The Effects of Undisclosed Agency

The effects of undisclosed agency in most continental civil law

systems differ to some extent from the effects under common law. An

intermediary will only not be liable towards the party with whom he

contracts for nonperformance by his principal (nondelivery of goods

or services) when he acts—within the scope of his authority—in the

name of his principal, thus establishing from the beginning a direct

contractual relationship between the principal and the third party:

When the representative, despite having authority, does an

act in the representative’s own name or otherwise in such a

way as not to indicate to the third party an intention to affect

the legal position of a principal, the act affects the legal posi-

tion of the representative in relation to the third party as if

done by the representative in a personal capacity. It does not

as such affect the legal position of the principal in relation to

the third party unless this is specifically provided for by any

rule of law.

Thus, it neither creates obligations of the principal towards the third

party nor obligations of the third party against the principal.

The privity of the contract is in this case stricter under civil law

than under common law. The intermediary is personally liable to its

principal (for nonperformance by the third party) and the co-con-

tracting third party (for nonperformance by the principal); on the

other hand, the intermediary can also personally claim performance

and compensation of damage caused by nonperformance. The rule

was applied recently in the judgment of the European Court of Justice

(“ECJ”) in Wathelet/Garage Bietheres,

in which a car dealer was sell-

ing a car from a private seller without informing the buyer-consumer

that he was not personally the seller. The court nevertheless consid-

ered him to be the seller with the same obligations to the buyer as a

seller and not merely of an agent for the seller.

C. Information from or Advertising by Earlier Links of the

Business Chain

A more recent development concerns the impact of statements—

including information and advertisement—by earlier links in the busi-

DCFR, supra note 4, art. II.–6:106 (emphasis added). R

Judgment of Nov. 9, 2016, in Case C-149/15, Wathelet v. Garage Bietheres & Fils SPRL,

curia.europa.eu/juris/documents.jsf?num=C-149/15 (noting that “a trader acting as intermediary

on behalf of a private individual who has not duly informed the consumer of the fact that the

owner of the goods sold is a private individual” is the seller).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 16 27-FEB-18 13:19

1754 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

ness chain in relation to goods or services sold by a later link in the

chain. This should be understood in the context of modern sales law,

where incorrect information by a business seller in relation to the

goods sold does not, or at least not only, give rise to a remedy for

misrepresentation (or similar pre-contractual remedy) but is qualified

as an undertaking of the business to deliver goods in conformity with

those statements (thus giving rise to remedies for nonperformance if

the goods do not conform to the information given). Otherwise said,

the buyer is not merely entitled to the reliance interest, but to the

expectation interest. This rule closely corresponds to Uniform Com-

mercial Code Article 2-313, especially (1)(a),

and is found in the

DCFR:

If one of the parties to a contract is a business and before the

contract is concluded makes a statement, either to the other

party or publicly, about the specific characteristics of what is

to be supplied by that business under the contract, the state-

ment is regarded as a term of the contract unless: (a) the

other party was aware when the contract was concluded, or

could reasonably be expected to have been so aware, that the

statement was incorrect or could not otherwise be relied on

as such a term; or (b) the other party’s decision to conclude

the contract was not influenced by the statement.

The DCFR, following the example of some civil law jurisdictions,

has extended this warranty not only to “a statement made by a person

engaged in advertising or marketing on behalf of the business,”

but

in consumer contracts also to “a public statement made by or on be-

half of a producer or other person in earlier links of the business chain

between the producer and the consumer,” which “is treated as being

made by the business unless the business, at the time of conclusion of

the contract, did not know and could not reasonably be expected to

have known of it.”

U.C.C. § 2-313(1)(a) (A

. L

NST

. &

NIF

. L

OMM

’

2014) (“Any affirmation of

fact or promise made by the seller to the buyer which relates to the goods and becomes part of

the basis of the bargain creates an express warranty that the goods shall conform to the affirma-

tion or promise.”).

DCFR, supra note 4, art. II.–9:102(2). R

Id. art. II.–9:102(3).

Id. art. II.–9:102(4).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 17 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1755

II. E

XTENDING

RIVITY

: T

HIRD

ERSONS AS

ARTIES TO A

ONTRACTUAL

BLIGATION

In a previous article on multiparty relationships in the 2009 Draft

Common Frame of Reference and Belgian Law, I analyzed the legal

structure of relationships such as direct representation (disclosed

agency), contracts in favor of a third party, assignment, appropriation

of a right to performance by the undisclosed principal, personal subro-

gation, real subrogation, and security interests in the form of so-called

“direct actions.”

In all these cases a third party acquires a contrac-

tual right (or an interest in it) without having been party to the con-

tract. I also analyzed the structure of situations where a third party

became a new or additional debtor. In this contribution, I would like

to restrict myself to a general approach and the following subtopics: a

summary of the general approach detected as to privity of contract;

some additional information on so-called “direct actions,” where there

is more divergence among national laws in Europe; specific cases

where obligations run with ownership or where rights can only be ac-

quired by taking over related obligations; and forum and arbitration

clauses.

A. What Privity Means and What It Does Not in Continental Civil

Law

Continental civil law does not have a technical term that corre-

sponds to the notion of “privity.” Continental lawyers generally use

the expressions “relativity of contract” and “relativity of the contrac-

tual/obligational relationship.” However, these two expressions

should be distinguished rather clearly. This gives rise to three rules:

there is no relativity of contract on the active side, there is relativity of

contract on the passive side, and there is a privity of the resulting con-

tractual relationship.

First, there is no relativity of contract on the active side. Contrac-

tual rights can be stipulated at the outset in favor of a third party, and

they can also be acquired after the fact by a third party (by assign-

ment, subrogation, or some other institution) without the consent of

the debtor, except where the contract creates “strictly personal” rights

(rights “intuitu personae creditors,” that is, concluded in consideration

of the person of the creditor). In both cases, this acquisition of rights

Matthias E. Storme, The Structure of the Law on Multi-Party Situations in the 2009 Draft

Common Frame of Reference and Belgian Law, in

RAFT

OMMON

RAME OF

EFERENCE

ATIONAL AND

OMPARATIVE

ERSPECTIVES

147, 149–51, 161–62, 164–67, 176–81, 186 (Vincent

Sagaert, Matthias E. Storme & Evelyne Terryn eds., 2012), https://ssrn.com/abstract=2871103.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 18 27-FEB-18 13:19

1756 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

by a third party does not deprive the debtor of any defense, even if the

third party or acquirer does not as such become liable for the obliga-

tions of the promisee (contract in favor of third party), respectively

the original creditor (assignment etc.). The first case (contract in favor

of a third party) is the result of a long evolution in civil law, but has

essentially been accepted in civil law jurisdictions since the nineteenth

century; it is well known that classical common law still does not ac-

cept this extension of privity in general and that the change in English

law has been introduced by the Contracts (Rights of Third Parties)

Act 1999.

As to the second case, the acceptance of assignability of

rights to performance—without consent of the debtor and without

taking over the corresponding obligations—is equally the result of a

long evolution in private law, whereby rights to performance came to

be treated as incorporeal things or assets (in contrast with the old

maxim nomina ossibus inhaerent that opposed a transfer of rights to

performance).

Civil law jurisdictions differ to a larger extent as to

the third-party effects of no-assignment clauses.

Further, at least in

some jurisdictions, some benefits of a contract cannot be acquired by

a third party without also taking over the burdens. Civil law jurisdic-

tions also differ to a larger extent as to the acceptance of so-called

“direct actions,” which is a good reason to focus precisely on them to

illustrate the possible extensions of privity on the active side.

Second, there is relativity of contract on the passive side, in the

sense that a contract cannot, in principle, impose obligations on a

third party without the consent of that party (either given in advance,

at the same time, or later; either given personally or through a person

with authority to bind that party). This is the “no third-party burden”

principle. However, contractual obligations are sometimes, by virtue

of law, attached to or run with property rights in things (called qualita-

tive obligations, or sometimes—but this expression is less clear and

thus confusing—obligations propter rem).

See, e.g.,

EIN

OTZ

UROP

AISCHES

ERTRAGSRECHT

468 (2d ed. 2015);

EINHARD

IMMERMANN

AW O F

BLIGATIONS

: R

OMAN

OUNDATIONS OF THE

IVILIAN

RADITION

34 (1996).

See, e.g.,

ILIPPO

ANIERI

UROP

AISCHES

BLIGATIONENRECHT

434 (2d ed. 2003);

IMMERMANN

, supra note 57, at 58–67; Dave De Ruysscher, Innovating Financial Law in Early R

Modern Europe: Transfers of Commercial Paper and Recourse Liability in Legislation and Ius

Commune (Sixteenth to Eighteenth Centuries), 19

. R

. P

RIV

. L.

505 (2011).

I will not tackle this hot topic here. See, e.g., Storme, supra note 56. R

See infra Sections II.C, II.D.

See infra Section II.E.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 19 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1757

Third, there is a privity of the resulting contractual relationship in

the sense that a person who is not a party to the relationship (as credi-

tor or debtor) may, on the one hand, not deprive the creditor (who is

seen as owner of the right to performance) of the benefit of the right

to performance, but is, on the other hand, not bound to perform. The

latter is true even if performance by a third party is generally al-

lowed

and will, under certain conditions, also subrogate the perform-

ing third party in the rights of the original creditor, who is thus not

discharged.

The first aspect is traditionally expressed in the vague

formulation that the “existence” of the contractual right or relation-

ship is a “fact” for third parties that they have to “respect” and may

also enjoy.

The concrete meaning of this formula becomes clearer in

some doctrines of tort law (such as the tort of inducement into breach

of contract).

Before analyzing some cases where a third party ac-

quires contractual rights otherwise than by assignment, I would like to

elaborate a bit more on the rules on defenses in the relationship be-

tween the debtor and the “new” creditor (including a beneficiary of a

contract for the benefit of third parties).

B. Defenses in General

Where a third party acquires a contractual right, the right ac-

quired is in principle dependent upon the original contractual rela-

tionship and not abstracted from it. On the contrary, in cases where a

negotiable instrument is issued, the contractual right is abstracted.

As illustrated in Figures 1 to 4, it has become customary to name the

original relationship the “provision relationship” in all triangular rela-

tionships, even though this term was originally used only for bills of

exchange and similar payment instruments. In the same vein, the rela-

In some cases, personal performance by the debtor is required by the terms of the con-

tract. See, e.g., DCFR, supra note 4, art. III.–2:106. R

See id. art. III.–2:107. The requirements for such a subrogation vary in different civil law

jurisdictions; which explains why the DCFR does not restate these rules.

See, e.g., 2

H. D

ALHUISEN

ALHUISEN ON

RANSNATIONAL

OMPARATIVE

, C

OM-

MERCIAL

, F

INANCIAL AND

RADE

112 (2013).

Irrespective of whether such interference is contrary to public policy (as it is according

to section 194 of the Restatement (Second) of Contracts

)

, it will constitute a tort where the third

party did not act in legitimate protection of one’s own interest. See, e.g., DCFR, supra note 4, art. R

VI.–2:211. For English law, see the judgment of the House of Lords in OBG Ltd. v. Allan [2007]

UKHL 21, [2008] 1 AC (HL) 17.

See, e.g., Convention Providing a Uniform Law for Bills of Exchange and Promissory

Notes art. 17, June 7, 1930, 143 L.N.T.S. 257. See generally Peter Ellinger, Negotiable Instru-

ments, in 9

NTERNATIONAL

NCYCLOPEDIA OF

OMPARATIVE

¶¶ 5, 14

(1981).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 20 27-FEB-18 13:19

1758 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

tionship between the old and the new creditor is now generally named

the “valuta relationship.”

The rule, illustrated in Figure 1, is well known in the law on as-

signment and common to civil and common law jurisdictions.

The

right is acquired “as is” and the debtor may assert against the new

creditor “all substantive and procedural defences to a claim based on

the assigned right which the debtor could have invoked against the

assignor.”

IGURE

1. A

SSIGNMENT

The rule is, however, not limited to assignment, but applies in

principle to any acquisition by a third party of an already existing con-

tractual right, such as in the case of acquisition by subrogation (also

named assignment ex lege or cessio legis), or as an accessory right

passing together with property of a main right, as illustrated in Figure

4 in Section C.2, or in the case of appropriation by a principal of rights

acquired by an intermediary (in jurisdictions allowing such

appropriation).

See, e.g.,

ESTATEMENT

ECOND

)

ONTRACTS

§ 336;

DCFR

, supra note 4

art. R

III.–5:116(1).

DCFR, supra note 4, art. III.–5:116. R

See infra Section II.C.3.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 21 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1759

In civil law jurisdictions, the same rule applies to rights acquired

by a third-party beneficiary from a contract in favor of third parties,

whereas the rule does not apply to the same extent according to the

Restatement (Second) of Contracts.

We thus find it in the DCFR as

“the contracting party may assert against the third party all defences

which the contracting party could assert against the other party to the

contract.”

This rule is an application of the more general principle

that “[t]he nature and content of the third party’s right or benefit are

determined by the contract and are subject to any conditions or other

limitations under the contract,”

as illustrated in Figure 2.

IGURE

2. S

TIPULATION IN

AVOR OF A

HIRD

ARTY

The right is acquired “as is” by the third party, and it must be

determined from which moment in time “new” modifications or facts

affecting the provision relationship between the debtor and the old

ESTATEMENT

ECOND

)

ONTRACTS

§ 309(3) (“Except as stated in Subsections (1)

and (2) and in § 311 or as provided by the contract, the right of any beneficiary against the

promisor is not subject to the promisor’s claims or defenses against the promisee or to the prom-

isee’s claims or defenses against the beneficiary.”)

DCFR, supra note 4, art. II.–9:302(b). R

Id. art. II.–9:301(2). There is more variation among civil law jurisdictions as to the ques-

tion at which exact moment in time and under which conditions the third-party beneficiary ac-

quires a right or at least an irrevocable right. The DCFR has opted for the most coherent

solution, namely that this depends on the terms of the contract. See id. Thus the DCFR contains

no default rule corresponding to Restatement that the promisor and promisee retain power to

discharge or modify the duty by subsequent agreement, unless a term of the promise provides

that this is ineffective or the beneficiary manifests its assent. See

ESTATEMENT

ECOND

)

ONTRACTS

§ 311(2)–(3).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 22 27-FEB-18 13:19

1760 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

creditor can no longer be set up against the new creditor. Facts such as

payment, fulfillment of requirements for set-off, incidents relating to

limitation of the action (in civil law terms “prescription”), etc. In most

civil law jurisdictions, this moment in time is, in the case of assign-

ment, the notification of the assignment to the debtor.

In that case,

the debtor can assert against the assignee: (1) all defenses that the

debtor could have invoked against the assignor and that existed (in

American law “accrued”) already at the time of notification; and

(2) all defenses against the assignee itself.

Caselaw has specified that in contractual relationships the right to

suspend (often named with the Latin expression exceptio non adim-

pleti contractus

) and the right to terminate the contractual relation-

ship for nonperformance are defenses that are inherently part of the

relationship from its origin and do not come into existence merely at

the time of nonperformance. They can thus be invoked against the

assignee even when the nonperformance of the assignor took place

only after the assignment or its notification.

C. Types of So-Called “Direct (Contractual) Actions”

The purpose of this contribution and the Symposium to which it

contributed is to provide insight for legal reform through a greater

understanding of differences between civil and common law jurisdic-

tions. Thus, I would like to illustrate the possible extensions of privity

of contract by choosing, from among the different techniques by

which third parties acquire rights to performance or interests in such

rights, the category of so-called “direct actions.” I choose it because

this concept is indeed typical of civil law jurisdictions and despite the

fact that—or precisely because—it is not a unitary category at all. In-

deed, we are making it particularly difficult for foreign lawyers to un-

derstand the so-called “direct actions” by using the same word for

quite different rights and using different words for basically identical

institutions, such as (some forms of) “direct action,” “own right,”

Cf.

ESTATEMENT

ECOND

)

ONTRACTS

§ 336(2).

Id.

See, e.g., DCFR, supra note 4, art. III.–3:401, cmt A. R

See, for examples under Belgian law, [Cass.] Sept. 13, 1973,

ECHTSKUNDIG

EEKBLAD

[RW] 1973–74, 997, 352, http://jure.juridat.just.fgov.be/view_decision.html?justel=N-19730913-2;

[Cass.] Sept. 27, 1984,

ECHTSKUNDIG

EEKBLAD

[RW] 1984–85, 2699, jure.juridat.just.fgov.be/

view_decision.html?justel=N-19840927-4; [Cass.] Jan. 28, 2005, Case No. C.04.0035.N, VTB-VAB

v. ABB,

ECHTSKUNDIG

EEKBLAD

[RW] 2006–07, 476, jure.juridat.just.fgov.be/view_decision

.html?justel=N-20050128-11.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 23 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1761

“lien,” or “statutory pledge.” The direct action is thus the chameleon

of contract law.

There are three basic types of situations where the term “direct

action” is used. First, it is used where a third party acquires—by virtue

of law or presumed will of the parties—the full right to performance.

This is so in cases of acquisition of rights as accessory to a thing ac-

quired

and cases of takeover by an undisclosed principal of a right

acquired by the agent in its own name.

Second, it is used where a

third party acquires—by virtue of law—a security interest (one could

call it a lien) in a right to performance, thus granting that party a pri-

ority in case of insolvency of the owner of the right (who is also the

primary creditor of the right).

Third, it is used in situations where a

third party has an “abstract” right to performance against a debtor of

its debtor, and more specifically against the liability insurer of its

debtor, as explained hereunder in Section 1.

1. Direct Actions as Suretyship

The most far-reaching case is the third scenario. In that case, illus-

trated in Figure 3, the insurance contract grants, within the limits of

the insurance coverage contracted, the “victim” of the insured party a

right to performance against the insurer that is not dependent on the

fate of the insurance contract. In most civil law jurisdictions, this is

only rarely the case, and a direct action against the insurer looks more

like the second scenario.

In Belgian law, however, this is the case for

all obligatory liability insurance contracts (i.e., where an activity may

only be exercised if there is a valid liability insurance contract granting

the insurance coverage required by statute). The best-known case is

certainly obligatory motor car liability insurance, but there is a very

long list of other situations where liability insurance is obligatory.

Where liability insurance is not obligatory, we are in the second scena-

rio, discussed infra Section II.D, and the victim has merely a lien on

the right that the insured party has against the liability insurer.

See infra Section II.C.2.

See infra Section II.C.3.

See infra Section II.D.

Liste des Assurances Obligatoires,

. S

ERVS

. & M

KTS

. A

UTHORITY

(Dec. 31, 2016),

https://www.fsma.be/fr/liste-des-assurances-obligatoires-0 (on file with The George Washington

Law Review) (containing an unofficial list of obligatory insurance scenarios).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 24 27-FEB-18 13:19

1762 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

IGURE

3. D

IRECT

CTIONS IN

BLIGATORY

NSURANCE

ONTRACTS

This “direct action” against the insurer in case of compulsory in-

surance is functionally equivalent to a suretyship. There are some dif-

ferences: the coverage is granted by a contract that is not concluded

with the creditor as in the case of suretyship, but with the person who

might be liable, and deemed to be concluded also in favor of third

parties (future victims); a surety who has paid the creditor has a re-

course against the main debtor, whereas the insurer who has paid has

a recourse only in cases where the liability is not covered according to

the internal contractual relationship. Nevertheless, there are still

many similarities: the victim has a direct action within the limits of its

right to compensation towards the insured person and the coverage

that was granted by the insurer; the insurer may still invoke that no

coverage was granted or that the contract granting coverage is void or

avoided, but may not invoke any defenses out of the insurance con-

tract arisen after its conclusion. For all the activities where liability

insurance is compulsory, the legislator thus obliges the actor to find a

guarantee for possible victims, not in the form of a classical suretyship,

but in the form of liability insurance.

2. Acquisition of Rights as Accessory to a Thing Acquired

Let us now turn to the first type of direct action. It is the name

sometimes given—even if misleadingly—to the effect of treating

rights to damages in relation to things and similar rights in relation to

things as “accessory” or “qualitative” rights that pass along with the

property right in the thing. This effect is rather widespread in some

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 25 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1763

civilian jurisdictions. It has been developed by caselaw on the basis of

vague provisions in, for example, the French Civil Code.

The doc-

trine thus established by caselaw is interesting for our theme espe-

cially in the cases where contractual rights are in this way transferred

by operation of law to subsequent acquirers of goods or rights in land.

This is the case for rights and remedies of a landlord against a tenant,

when the premises are sold; rights of the insured against a first-party

insurer insuring damage to the thing, when the thing is sold; rights and

remedies against building contractors or architects for defective per-

formance, when the defective building is sold; and rights and remedies

against sellers for nonconformity of goods, when these goods are sold.

The rule does not exclusively apply in case of sale. It also applies in

other cases of transfer of ownership or the granting of proprietary

rights. We say that the accessory right goes with ownership, but in case

the goods or rights in land are charged or mortgaged, the secured

creditor of the acquirer will acquire a proprietary security interest in

that accessory right as well.

As the right acquired in this way is not a new or independent

right, but the right of the preceding owner that was passed along, the

debtor can assert against the acquirer of the right all defenses he could

have set up against his contracting partner, as illustrated in Figure 4.

Thus, the supplier may assert against the sub-buyer all defenses he

could assert against the first buyer. The effect is the same as in the

case of assignment, which explains why these cases are sometimes also

named assignment “ex lege,” or assignment as a matter of law.

ODE CIVIL

[C.

CIV

.] [C

IVIL

ODE

] art. 1615 (Fr.).

DCFR, supra note 4, art. IV.D.–1:105 note 13; Matthias E. Storme, The Structure of the R

Law on Multiparty-Situations in the 2009 Draft Common Frame of Reference, 17

. R

RIV

. L.

531, 546 (2009).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 26 27-FEB-18 13:19

1764 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

IGURE

4. D

IRECT

CTIONS IN

ALES

The transfer ex lege of accessory rights is, however, usually not

mandatory but based on the presumed intention of the parties (to be

more precise, the parties to the second contract); therefore, in the case

of defects or nonperformance already apparent at the time of conclu-

sion of that contract, this presumption falls and there is rather a pre-

sumption that the goods or property were sold for a lower price and

that it was the intention of the parties that the right to damages of the

seller against its supplier or service provider remains with that seller.

The practical effect of this rule can be illustrated with a case

that

bears some resemblance to the English case of Simaan General Con-

tracting Co. v. Pilkington Glass Ltd. (No. 2)

and concerned an office

building in Brussels with defective glass panels. The client of the main

contractor was the Belgian government, the main contractors were

Sogiaf and Gillion Construct, the subcontractor was Bombardier, and

the supplier of glass panels engaged by the subcontractor was AGC

Glass Europe.

The court decided that the client could exercise

Cour de Cassation [Cass.] [Court of Cassation], Sept. 15, 2011, No. C.10.0456.N, http://

jure.juridat.just.fgov.be/pdfapp/download_blob?idpdf=F-20110915-6 (Belg.).

[1988] 1 QB 758 (Eng.). For further analysis of this English case, see Simon Whittaker,

Contract Networks, Freedom of Contract and the Restructuring of Privity of Contract, in

ON-

TRACTUAL

ETWORKS

, I

NTER

-F

IRM

OOPERATION AND

CONOMIC

ROWTH

, supra note 11, at R

179, 192.

Cour de Cassation, No. C.10.0456.N.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 27 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1765

against its contractor (the main contractor) the rights out of that con-

tract and exercise, as owner of the defective glass panels, against the

supplier AGC Glass Europe the rights out of the contract between the

subcontractor Bombardier and that supplier (in that sense the supplier

was “directly” liable towards the client).

However, the client could

not exercise a direct right against the subcontractor Bombardier; the

right of the contractor against its subcontractor did not pass ex lege to

the client, as the ownership of the glass panels was not transferred by

the main contractor to the client (the client became owner directly

when the subcontractor installed the glass).

Such a direct action has two main advantages for its acquirer: the

direct claim is not subject to the limitations of one’s own contract, and

it stands in case of insolvency of one’s own contractor (the intermedi-

ary contractor). The latter will not be very helpful, however, if its

debtor has not been paid by the intermediary chain, as that debtor can

raise against the direct action all defenses he could assert against its

direct creditor. But the recognition of a direct action is especially im-

portant in those jurisdictions where, as in France and Belgium, a sub-

contractor enjoys immunity in tort against claims for any damage

suffered by the client that amounts to a nonperformance of the main

contract.

It may also be interesting in this context to point to a judgment of

the Belgian Constitutional Court of 2006. In Belgium, as in some

other countries of continental Europe (such as Germany and Italy

constitutional courts have been quite active in reshaping private law

on the basis of the constitutional equality principle, reviewing whether

a legal rule is not discriminating by making a distinction that is not

reasonably justified. In the 2006 Belgian decision,

the client com-

Id.

See infra Part III.

See the different national chapters in

ONSTITUTIONALISATION OF

RIVATE

(Tom

Barkhuysen & Siewert D. Lindenbergh eds., 2006), especially for Germany, Gert Br ¨uggemeier,

Constitutionalisation of Private Law: The German Perspective, in

ONSTITUTIONALISATION OF

RIVATE

, supra, at 59, and the different chapters in

NFLUENCE OF

UMAN

IGHTS

AND

ASIC

IGHTS IN

RIVATE

(Verica Trstenjak & Petra Weingerl eds., 2016), especially

for Italy, Emanuela Navarretta & Elena Bargelli, The Influence of Human Rights and Basic

Rights in Italian Private Law: Strategies of ‘Constitutionalisation’ in the Courts Practice, in

NFLUENCE OF

UMAN

IGHTS AND

ASIC

IGHTS IN

RIVATE

, supra, at 421. For Ger-

many, see Elke Luise Barnstedt, Judicial Activism in the Practice of the German Federal Consti-

tutional Court: Is the GFCC an Activist Court?, 13

URIDICA

’

38 (2007), http://www

.juridicainternational.eu/public/pdf/ji_2007_2_38.pdf.

Cour Constitutionnelle [CC] [Constitutional Court (Cour d’arbitrage prior to 2007)] de-

cision no 111/2006, June 28, 2006, http://www.const-court.be/public/f/2006/2006-111f.pdf (Belg.).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 28 27-FEB-18 13:19

1766 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

plained to the Constitutional Court that in cases of insolvency of the

intermediary contractor, subcontractors are protected with a direct ac-

tion against the client for payment of the price for their work,

but

clients are neither protected by a direct action against subcontractors

(except in rare cases) nor allowed to sue the subcontractor in tort for

the damage that also amounts to a nonperformance by the main con-

tractor, even if caused by the subcontractor. The court decided, how-

ever, that the two situations are entirely different.

One could also

say that in cases of insolvency of the intermediary, the insolvent estate

would be enriched at the expense of the subcontractor if the estate

could claim payment from the client for the work of the subcontractor

without paying the subcontractor. According to the judgment of the

Belgian Constitutional Court, the estate is not enriched in the same

way at the expense of the client if it can claim damages from the sub-

contractor, whom it has already paid, without paying back the main

contractor. The difference is in my view not so apparent, but it is un-

derstandable that the court was not willing to create an additional pri-

ority in bankruptcy merely on the basis of the constitutional equality

principle (although Americans may immediately remind us that the

Supreme Court of the United States has created quite a number of

constitutional rights with much less backing in the text of their

Constitution).

3. Unilateral Takeover by an Undisclosed Principal

Previously, I explained that in the case of indirect representation

(more or less corresponding to undisclosed agency), the principal does

not, in principle, have a direct right to performance against the con-

tractor of the intermediary, and neither does that contractor have a

direct right to performance against the principal. This does not ex-

clude that, in at least some civil law jurisdictions, property will pass

directly from the principal to the contracting third party or vice versa,

but this question of property law is beyond the scope of this contribu-

tion. This main rule is quite common among continental civil law sys-

tems; the exceptions to the rule are less common. The national laws

differ as to the cases in which the principal has the right to take over

unilaterally (with proprietary effect) the right acquired by the agent in

its own name.

Evidently, in all jurisdictions, the intermediary can

See infra Section II.D.2.

Id.

The reverse question whether the third party may take over the rights of the agent

against the principal is discussed in Sections II.D and II.E.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 29 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1767

assign the right to its principal. A right of unilateral takeover is

granted in the DCFR only in the case of insolvency of the agent.

Under the Principles of European Contract Law (“PECL”), the right

already accrues to the creditor in the case of fundamental nonper-

formance of the agent.

Laws also differ as to the effect of such a

takeover: Is the right only limited in the sense that the debtor may

assert all defenses as in the case of assignment (the PECL rule and the

Belgian rule), or is the principal also bound to perform the corre-

sponding obligations of the agent towards the third party (DCFR

rule)?

The expression “direct action” is also used for the right of a prin-

cipal in the case of disclosed agency to act directly against the third

party to whom the agent has delegated his task,

but this is to be

explained differently: in delegating the task, the agent has exercised

its authority to act in the name of the principal, and the subagent is

therefore deemed to have concluded the contract directly with the

principal.

D. Direct Actions as Security Rights

Finally, continental civil law has also developed various close en-

counters of a third kind, where the so-called “direct action” amounts

to a security interest, acquired by virtue of law, in a right to perform-

ance that one’s debtor has against a third party. This grants the credi-

tor a priority in case of insolvency of that debtor (being the primary

creditor of the right). The direct action basically has the same effects

as a lien, as the creditor has a right to performance against the third

party only within the limits of his claim against his contractor (the

secured claim) and those of the claim of his debtor against the third

party (the collateral). I would like to give a bit more detail about two

typical cases of such direct actions: liability insurance and unpaid sub-

contractors. Other cases where such direct actions can be found in

See DCFR, supra note 4, art. III.–5:401; cf. Loi sur les faillites [Insolvency Act] of Aug. R

8, 1997, art. 103, para. 2 (Belg.), http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=

fr&la=F&cn=1997080880&table_name=loi. From May 1, 2018, on, this paragraph of the Insol-

vency Act is replaced by Article XX.196 of the Code of Economic law, http://www.ejus-

tice.just.fgov.be/cgi_loi/change_lg.pl?language=fr&la=F&cn=2017081114&table_name=loi.

See

RINCIPLES OF

UROPEAN

ONTRACT

: P

ARTS

AND

art. 3:302 (Ole Lando &

Hugh Beale eds., 2000) [hereinafter PECL].

See, e.g.,

ODE CIVIL

[C.C

art. 1994, para. 2 (Belg.);

ODE CIVIL

[C.

CIV

.] [C

IVIL

ODE

]

art. 1994, para. 2 (Fr.);

STIKOS

ODIKAS

[A.K.] [C

IVIL

ODE

]

Art. 716, para. 3

(Greece);

ODICE CIVILE

[C.

.] [C

IVIL

ODE

]

art. 1705, para. 2 (It.);

ODIGO

IVIL

[C.C.] [C

IVIL

ODE

]

art. 1722 (Spain);

BLIGATIONENRECHT

[OR] [C

ODE OF

BLIGATIONS

]

art. 399, para. 3

(Switz.).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 30 27-FEB-18 13:19

1768 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

some civilian jurisdictions are subtenancy,

direct actions and liens in

the case a check or bill of exchange is drawn (relevant where the

drawee has not made an independent promise to pay), liens in favor of

tax authorities or social security institutions, and counterclaims of the

third party against the undisclosed principal (traditionally named actio

contraria).

1. Liability Insurance

As to the question whether there is such an “own right” (direct

action) against the insurer or an equivalent lien in the case of liability

insurance, national systems differ considerably. Most systems prohibit

the insured party from disposing of its cover entitlement (right to pay-

ment from the insurer) to the disadvantage of the victim, while some

will more explicitly grant the victim an own right or a lien over the

cover entitlement, at least for certain types of liability insurance.

100

own legal system (Belgium) grants the widest range of rights: not only

does it grant a direct action in all cases of liability insurance, it also

makes that right “abstract” in all cases where the liability insurance is

compulsory, as discussed in Section II.C.1. As a general rule, unless

the direct action is abstract, an insurer may assert against the victim all

defenses based on an act or fact prior to the insured event (including

termination of the insurance contract for nonperformance by the in-

See, e.g.,

ODE CIVIL

[C.

CIV

art. 1753 (Belg.), translated in

ONSTITUTION OF

ELGIUM AND THE

ELGIAN

IVIL

ODE

284 (John H. Crabb trans., 1982);

ODE CIVIL

[C.

CIV

IVIL

ODE

]

art. 1753 (Fr.);

ODICE CIVILE

[C.

] [C

IVIL

ODE

] art. 1595 (It.);

ODIGO

IVIL

[C.C.] [C

IVIL

ODE

] art. 1552 (Spain);

ODIGO

IVIL

ODE

] art. 1063 (Port.).

This action is found in the PECL, supra note 96, art. 3:303, according to which the third R

party may, in case of insolvency or fundamental nonperformance of the intermediary towards

the third party, “exercise against the principal the rights which the third party has against the

intermediary, subject to any defenses which the intermediary may set up against the third party

and those which the principal may set up against the intermediary.” Id. The rule is inexistent in

the DCFR, which does give the third party a more far-reaching right, but only in case the princi-

pal has already decided to act directly against the third party.

100

For a recent overview, see

OMPULSORY

IABILITY

NSURANCE FROM A

UROPEAN

ERSPECTIVE

(Attila Fenyves et al. eds., 2016), especially questions 17 to 19 in the country re-

ports in the comparative overview on pages 407 to 411. The matter is not harmonized in the EU,

although there is a vague formula for obligatory motor vehicle insurance in article 3 of EU

Directive 2009/103 relating to insurance against civil liability in respect of the use of motor vehi-

cles. Directive 2009/103/EC of the European Parliament and of the Council of 16 September

2009 Relating to Insurance Against Civil Liability in Respect of the Use of Motor Vehicles, and

the Enforcement of the Obligation to Insure Against Such Liability, art. 3, 2009 O.J. (L 263) 11,

http://data.europa.eu/eli/dir/2009/103/oj (“Each Member State shall, subject to Article 5, take all

appropriate measures to ensure that civil liability in respect of the use of vehicles normally based

in its territory is covered by insurance.”).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 31 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1769

sured, if effected before the event). But the insurer is cut off from

asserting defenses based on acts subsequent to the insured event.

2. Subcontractors

Some national systems do also protect subcontractors or employ-

ees of contractors against the insolvency of their contractor by grant-

ing them—by operation of law—a lien or a direct action on the right

to payment that their contractor still has against its client,

101

as illus-

trated in Figure 5. This also applies to a sub-subcontractor acting di-

rectly against the main contractor.

102

A legal system recognizing this

possibility will determine the answers to the three following questions:

1) which link is sufficient between the secured right to payment and

the charged right to payment (i.e., must they relate to the same work

or service, or not); 2) from which moment in time (e.g., upon notifica-

tion to the client by the subcontractor of a statement that the subcon-

tractor is not paid and therefore exercises its direct right) can new

defenses no longer be asserted by the client against the subcontrac-

tor;

103

and 3) what is the ranking of this security right in cases of con-

flict with other pledges or charges on the collateral (e.g., Is there a

filing system? Does it only rank at the time of notification? Does it

automatically rank first, given the link between the secured right to

payment and the charged right to payment?).

101

E.g.,

ODE CIVIL

[C.

CIV

art. 1798 (Belg.);

ODE CIVIL

[C.

CIV

.] [C

IVIL

ODE

] art. 1798

(Fr.); Loi 75-1334 du 31 d ´ecembre 1975 relative `a la sous-traitance [Law 75-1334 of December

31, 1975 Relating to Subcontracting Consolidated], www.legifrance.gouv.fr/affichTexte.do?cid

Texte=JORFTEXT000000889241;

STIKOS

ODIKAS

[A.K.] [C

IVIL

ODE

] Art. 702 (Greece);

ODICE

IVILE

[C.

.] [C

IVIL

ODE

] art. 1676 (It.);

ODIGO

IVIL

[C.C.] [C

IVIL

ODE

] art. 1579

(Spain).

102

For an extensive interpretation of the right as imposed under Belgian law, see

Grondwettelijk Hof [GwH] [Constitutional Court] decision no 12/2012, Feb. 2, 2012, http://www

.const-court.be/public/n/2012/2012-012n.pdf (Belg.).

103

Such notification has the same function as a notification of an assignment, albeit that

the effect of this type of direct action, merely constituting a security right, is more limited than

that of an outright assignment.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 32 27-FEB-18 13:19

1770 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

IGURE

5. D

IRECT

CTION

GAINST

UBCONTRACTOR

3. Analogy with a Pledge of Receivables

There is a clear analogy with the situation where a right to per-

formance is pledged or charged on the basis of a contract, as illus-

trated in Figure 6. The main difference is that, in cases of a contract of

pledge, the parties (and not the law) determine which rights are se-

cured by the charge, pledge, or lien. This is even more the case in

those jurisdictions where pledges or charges over rights to perform-

ance do not have to be registered or filed to be effective in insolvency

of the pledgor.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 33 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1771

IGURE

6. S

ECURITY

IGHT IN A

IGHT TO

ERFORMANCE

E. Rights Only Acquired in Cases Where Obligations Are Taken

Over as Well; Obligations Running With Ownership

In some civil law systems, some benefits of a contract cannot be

assigned separately but only in the context of a transfer of the full

contractual relationship. Insofar as the transferor would be discharged

from its obligations, this requires the consent of the other party to the

original contract (except in special cases provided by law), but often

the transfer of contract is “imperfect” and the old contracting party

remains liable, at least as a subsidiary debtor. This doctrine, requiring

a party to take over the obligations along with the rights, is rare, but

the ECJ has employed the doctrine with respect to forum clauses.

104

Another case is found in DCFR Article III.–5:402, which states that in

cases of a unilateral takeover by an undisclosed principal of rights ac-

quired by an intermediary by contracting with a third party, the third

party has the counter-option to claim performance by the principal of

the corresponding rights he has against the intermediary.

Apart from the special cases, the main example that applies to all

contracts and is found in caselaw is the right to terminate a contract.

In many cases of assignment of rights without corresponding obliga-

tions, the assignee cannot terminate the original contract (to which he

104

See infra Section II.F.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 34 27-FEB-18 13:19

1772 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

was not a party) for nonperformance. This is not the solution in Bel-

gian caselaw, according to which the assignee is entitled to terminate

the contract for nonperformance under the same conditions as the as-

signor, unless the assignee has acquired only part of the contractual

rights and that part is indivisibly linked to the remaining part of the

contract.

105

There is, however, another doctrine that has important applica-

tions and similar effects; namely the doctrine of qualitative obliga-

tions.

106

In most continental systems, an acquirer of a thing (e.g.,

goods, rights in land, etc.) who is acquiring by way of particular acqui-

sition and not by way of universal acquisition, is not bound by the

obligations of its predecessor in relation to those goods, except in

cases explicitly provided by law. In other countries, parties may make

obligations in relation to land qualitative (running with the land) by

contract under the condition that they are registered in the land regis-

ter (e.g., Netherlands, Spain). Most civil law jurisdictions are in this

respect clearly more restrictive than the common law on real cove-

nants in land. Typical examples of qualitative obligations by operation

of law may include: obligations of landlords towards tenants (in cases

of sale of leased property; “emptio non tollit locatum”);

107

obligations

linked to certain limited proprietary interests in land; obligations

linked to co-ownership (e.g., condominiums or apartment buildings);

and obligations of a licensee of intellectual property rights.

F. The Case of Forum and Arbitration Clauses

Within the EU, the formation, validity, and effect of forum

clauses is to a large extent uniformly governed by EU law (especially

the Brussels Ibis regulation

108

). The caselaw of the ECJ in relation to

such forum clauses departs from the rule in many EU countries that

the debtor of a right to performance may assert a forum clause against

the assignee of the right or any other acquirer of the right (including

direct actions). According to that caselaw, in cases within the scope of

105

Cour de Cassation [Cass.] [Court of Cassation], Sept. 20, 2012, No. C.11.0662.F (Belg.),

http://jure.juridat.just.fgov.be/view_decision.html?justel=F-20120920-5. In the latter case, termi-

nation requires the consent of all creditors of rights out of that contract.

106

See supra text accompanying note 61.

107

E.g.,

ODE

IVIL

[C.C

.] art. 1743 (Belg.);

ODE CIVIL

[C.

CIV

.] [C

IVIL

ODE

] art. 1743

(Fr.);

URGERLICHES

ESETZBUCH

[BGB] [C

IVIL

ODE

], § 566 (Ger.);

ODICE CIVILE

[C.

IVIL

ODE

]

§ 1599 (It.); DCFR, supra note 4, art. IV.B.–7:101 (some of these provisions deal R

specifically with either the lease of movables or immovables).

108

Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12

December 2012 on Jurisdiction and the Recognition of Enforcement of Judgments in Civil and

Commercial Matters, O.J. (L 351) 1, data.europa.eu/eli/reg/2012/1215/oj (especially art. 23).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 35 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1773

the Brussels Ibis regulation, a forum clause can be asserted against a

third party only where there is actual consent, in writing by that party

or in a form which accords with a usage in international commerce; or

where the third party has (according to the applicable national law)

taken over the full relationship (i.e., not only the rights but also the

obligations).

109

One application of the latter rule is that a forum clause

in articles of association can be asserted against new shareholders

(having bought shares on the secondary market),

110

and a forum

clause in issuing conditions of bonds can be asserted against a buyer

on the secondary market.

111

Nevertheless, the ECJ was more lenient

in the case of a forum clause in a bill of lading that could be asserted

against the acquirer of the goods,

112

although the acquirer of the goods

does not take over the obligations towards the carrier.

As there is no uniform EU rule on the formation, validity, and

effect of arbitration clauses, this is a matter for national law. Most

national systems tend to let the debtor assert the arbitration clause

against assignees and all other acquirers of the right against the

debtor, including in direct actions. Caselaw diverges as to the question

of whether a trustee in bankruptcy is bound by an arbitration clause

(e.g., he is bound according to Belgian

113

and English

114

caselaw, and

not bound according to Polish law

115

109

Judgment of Feb. 7, 2013, in Case C-543/10, Refcomp SpA v.Axa Corp. Sols. Assurance

SA, curia.europa.eu/juris/documents.jsf?num=C-543/10. For a recent overview, see Martina

Melcher, Zur Drittwirkung von Gerichtsstandsvereinbarungen nach der EuGVVO nF, 14 GPR

(

. U

NION

RIV

. L. R

246 (2017).

110

Judgment of Mar. 10, 1992, in Case C-214/89, Powell Duffryn plc v. Petereit, 1992

E.C.R. I-1769, I-1775, curia.europa.eu/juris/documents.jsf?num=C-214/89.

111

Judgment of Apr. 20, 2016, in Case C-366/13, Profit Investment Sim SpA v.Ossi, curia

.europa.eu/juris/documents.jsf?num=C-366/13.

112

Judgment of June 19, 1984, in Case C-71/83, Russ v. NV Haven, 1984 E.C.R.2417, 2421,

curia.europa.eu/juris/documents.jsf?num=C-71/83; Judgment of Nov. 7, 2000, in Case C-387/98,

Coreck Maritime GmbH v. Handelsveem BV, 2000 E.C.R., I-9362, I-9375, curia.europa.eu/juris/

documents.jsf?num=C-387/98.

113

Cour de Cassation [Cass.] [Court of Cassation], May 8, 1998, No. C.96.0400.F,

ASS

1998, No. 229 (Belg.), jure.juridat.just.fgov.be/view_decision.html?justel=N-199805

08-12; Hof van Beroep [HvB] [Court of Appeal] Feb. 21, 2006,

ECHTSKUNDIG

EEKBLAD

[RW] 2009–10, 279.

114

Philpott v. Lycee Fran¸cais Charles de Gaulle School, [2015] EWHC 1065 (Ch), http://

www.bailii.org/ew/cases/EWHC/Ch/2015/1065.html.

115

As applied in Switzerland by Bundesgericht [BGer] [Federal Supreme Court] Mar. 31,

2009, Vivendi S.A. v. Deutsche Telekom AG, Case No. 4A_428/2008 (Switz.), http://www.servat

.unibe.ch/dfr/bger/090331_4A_428-2008.html, translation at http://www.swissarbitrationdecisions

.com/sites/default/files/31%20mars%202009%204A%20428%202008.pdf.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 36 27-FEB-18 13:19

1774 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

III. E

FFECTS IN

ORT

In this last part, I would finally like to point out very briefly some

doctrines and developments in tort law that are specifically relevant to

chains or networks of contracts.

A. Expanding Tort Law

First of all, contracting may lead to an expansion of liability in

tort (i.e., for other damage than damage for which one is already con-

tractually liable). In one direction there is the traditional doctrine of

vicarious liability. A more recent development, however, is the debate

on chain liability; either liability for torts committed upstream (by

suppliers or subcontractors) or downstream in other cases than the

traditional cases of vicarious liability (more specifically by distribu-

tors).

116

There is not much appetite yet in civil law countries for ex-

panding tort law in this way. On the other hand, big buyers or service

providers are increasingly imposing performance standards on their

suppliers or subcontractors, including sustainability standards. The

study of such clauses and their effects is, however, beyond the scope

of this Essay.

117

B. Restricting Tort Law by the Doctrine of Non-Cumul

Continental civil law systems do also vary considerably as to the

question whether a contracting party may obtain, on the basis of the

law of torts, compensation for “contractual damage” (i.e., damage

consisting of, or caused by, the nonperformance of a contract with the

claimant). Several jurisdictions do exclude an action in tort for such

damage against the debtor of a contractual obligation towards the

claimant. French and Belgian caselaw went a step further by also ex-

cluding an action in tort against any third party to whom the contrac-

tual debtor has entrusted performance of the contractual obligation

whose nonperformance caused the damage.

118

The third party is thus

protected by the content of the contract under which it undertook to

perform. This protection is not frustrated by direct contractual actions,

where they apply, as the third party may then set up all the defenses

116

See, e.g.,

IESBETH

NNEKING

OREIGN

IRECT

IABILITY AND

EYOND

: E

XPLORING

THE

OLE OF

ORT

AW I N

ROMOTING

NTERNATIONAL

ORPORATE

OCIAL

ESPONSIBILITY

AND

CCOUNTABILITY

535–38 (2012).

117

See Fabrizio Cafaggi, Regulation Through Contracts: Supply-Chain Contracting and Sus-

tainability Standards,

12 E

. R

. C

ONT

. L.

218 (2016), for more on this topic.

118

For a recent case, see Hof van Cassatie [Cass.] [Court of Cassation], Mar. 24, 2016, No.

C.14.0329.N (Belg.), http://jure.juridat.just.fgov.be/view_decision.html?justel=N-20160324-17,

where the bank of the claimant had entrusted a payment service to another bank.

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 37 27-FEB-18 13:19

2017] NETWORK CONTRACTS AND PRIVITY 1775

out of its own contract.

119

Jurisdictions accepting a “cumul” and tort

claim against the third party in such cases are confronted with compli-

cated questions as to the third-party effect of exemption clauses stipu-

lated by subcontractors.

C. Other Immunities in Tort

Civil law jurisdictions typically recognize a number of specific im-

munities under tort law that are based on public policy considerations.

By way of example, I would like to mention three examples of such

immunities that are precisely relevant in chains or networks of con-

tracts. First of all, most jurisdictions restrict the liability in tort of em-

ployees, granting them immunity for, for example, simple

negligence.

120

Secondly, rules regulating the internet grant some im-

munity to internet service providers. They are found mainly in Arti-

cles 12 through 15 of the e-commerce Directive 2000/31.

121

It limits

their liability according to the following functions: access providers (as

the “mere conduit”) are solely liable for the proper transmission of

the data, and hosting providers are excluded from the liability for the

content available on their websites as long as they have not been ad-

vised to take down illegal content. According to the assessment of the

European Commission, online platforms should enjoy the same pref-

erential treatment because otherwise the continued growth of the digi-

tal economy could be seriously jeopardized.

122

Thirdly, several

constitutions contain immunities in order to protect freedom of

speech, namely by protecting intermediaries such as publishers and

printers who are not the author of the speech, in order to avoid pri-

vate censorship by such persons to limit their own risk of liability.

123

119

See supra Sections II.C, II.D.

120

See, e.g.,

RBEIDSOVEREENKOMSTENWET

[Labour Contracts Act] art. 8 (Belg.);

AH-

INGONKORVAUSLAKI

[Tort Liability Act] ch. 4, § 1 (Fin.);

KADEST ˚ANDSLAG

ch. 4, § 1 (Svensk

f¨orfattningssamling [SFS] 2010:1458) (Swed.).

121

Directive 2001/31/EC of the European Parliament and of the Council of 8 June 2000 on

Certain Legal Aspects of Information Society Services, in Particular Electronic Commerce, in

the Internal Market (Directive on Electronic Commerce), arts. 12–15, 2000 O.J. (L 178) 1, 12, 13,

data.europa.eu/eli/dir/2000/31/oj.

122

Communication from the Commission to the European Parliament, the Council, the Eu-

ropean Economic and Social Committee and the Committee of the Regions: Online Platforms and

the Digital Single Market Opportunities and Challenges for Europe, COM (2016) 288 final (May

25, 2016), http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52016DC0288.

123

See, for example,

RYCKFRIHETSF

ORORDNING

[TF]

art. 5 [Freedom of the Press Act

1810] (Swed.), now

RYCKFRIHETSF

ORORDNING

ch. 1, §§ 1–3 (Svensk f ¨orfattningssamling [SFS]

2015:151) (Swed.), and 1994

ONST

art. 25 (Belg.).

\\jciprod01\productn\G\GWN\85-6\GWN608.txt unknown Seq: 38 27-FEB-18 13:19

1776 THE GEORGE WASHINGTON LAW REVIEW [Vol. 85:1739

ONCLUSION

From this overview, it appears that continental civil law jurisdic-

tions have developed different instruments deviating from a strict doc-

trine of privity of contract in order to cope with at least some of the

questions that arise specifically because of the rise of contract chains

and networks. The two main concerns seem to be protecting contrac-

tual distribution of risks in relation to third parties and protection

against insolvency of the intermediate link.