Background
Taharu’u, a limited liability company operating as LS Proxi, contracted Pacific services company to perform plumbing work (lot 13) for construction of a new store under a fixed-price contract (marché à forfait). Taharu’u unilaterally terminated the contract. Pacific services company, subsequently placed in judicial liquidation, sued for damages including lost profit (gain manqué) and moral injury. The appellate court of Papeete accepted the contractor’s claim and awarded damages, finding the termination abusive and holding that the master’s termination right was discretionary without regard to contractor performance. Taharu’u appealed to the Court of Cassation.
The Court’s Holding
The Court of Cassation reversed the appellate decision. It held that Articles 1184 and 1794 of the French Civil Code coexist and must be read together. Article 1794 grants a master of work the unilateral right to terminate a fixed-price contract at any stage, even after work has begun, by compensating the contractor for all expenses, work performed, and lost profit. However, this statutory right does not eliminate the master’s common-law right to terminate under Article 1184 when the contractor commits serious breach—such as delays, poor workmanship, incomplete performance, or job abandonment.
The Court found that the appellate court violated these provisions by treating the master’s termination right as wholly discretionary and awarding full compensation without examining whether the contractor’s own alleged faults would exclude recovery. Under the correct legal framework, a contractor can claim Article 1794 compensation only if free of fault. If the contractor is at fault, the master may terminate under common law without owing the statutory compensation required by Article 1794. The case was remanded for proper factual and legal examination of the contractor’s alleged failures.
Key Takeaways
- A master of work’s unilateral termination right under Article 1794 is not purely discretionary; it coexists with common-law termination rights for contractor breach under Article 1184.
- Contractor fault in performance (delays, poor work, abandonment) may defeat the contractor’s claim for “lost profit” compensation even where termination occurs under Article 1794.
- Courts must inquire into contractor fault before awarding statutory compensation; the master’s right to terminate and the scope of damages owed are not independent of contractor performance.
Why It Matters
This decision resolves a critical ambiguity in French construction law by clarifying that Articles 1184 and 1794 form an integrated regime. While Article 1794 appears to offer unconditional termination rights, it operates in a field already occupied by Article 1184’s common-law right to terminate for breach. Contractors cannot use Article 1794 as a shield against consequences of their own failure; masters retain the ability to invoke contractor fault as a complete or partial defense to compensation claims. This reconciles the statutory termination right with fundamental contract law principles—parties remain bound by obligations of good faith and cannot profit from their own breaches.
For project owners and contractors operating in French jurisdictions, the decision underscores that termination disputes turn on actual performance, not on abstract rights. The remand signals that lower courts must examine the contractor’s conduct (work delays, quality defects, site abandonment) as material to both the master’s right to terminate and the contractor’s entitlement to damages.