The Deterrent Effect of French Liability Law: the Example of Abusive Contract Terms

Most civil and common law regimes rest on the principle of equivalence between the prejudice and the amount of damages allocated to the victim. This rule of compensation is particularly strict in French law and allows for no exception, whether in contract or in tort law. We question the efficiency of this rule in the specific case of abusive or unfair terms in consumer contracts. French law strictly forbids such terms in any contract signed by a professional party and a consumer. When found in a consumer contract, the forbidden term is removed from the contract, the rest of which remains valid, and the consumer can obtain damages to repair the prejudice in accordance with the rule of equivalence between damages and compensation. Based on the example of unfair contract terms, the paper raises the issue of the deterrent effect of French liability law. More specifically, we ask the following question: is the rule of equivalence between damages and compensation efficient to prevent unlawful behavior? We show that French consumer law does not efficiently prevent abusive contract terms from being enforced. More generally, we argue that the strict equivalence between damages and compensation does not create efficient incentives for the parties. We argue that the introduction of punitive damages in French law would serve as an efficient incentive device, namely in the presence of lucrative faults. Classification JEL: K12; K42; D21