Although the means to apply the mechanism of unpredictability is nowadays one of the most debated subjects in civil law, it is almost impossible not to be tackled in other domains, such as public law. Whereas the theory of contractual unpredictability had been born under the constraints of administrative jurisdiction, it became a lot more popular after its regulation in the Romanian Civil Code. There were numerous reasons to undertake this measure. After the financial crisis of 2008-2009, an institution that could balance the inequity between the parties’ rights and obligations – torn by an exceptional change of the circumstances – was demanded by many people who concluded different types of credit loans. The situation was new, but somehow foreseen. From the perspective of public law, even though there were few specific regulations, the jurisprudence elaborated some theories regarding the means of the harmonisation of economic and judicial realities.
Therefore, in this study, I endeavour to present the aspects regarding the applicability of the financial balance principle in the administrative contracts through two main theories. Then I will compare the conflict of one of them in two major law domains and of the two theories in the public field to see their exact applicability, as well as the main issues that could arise from it.
1. Two theories for one principle
It is considered that there are two main theories that substantiate the financial balance principle in public law: the act of administration and the theory of contractual unpredictability (Săraru, 2013, p. 442-443). The first one, which is also known as „le fait du prince”, emerged from the performance of a contract and consists of an aggravation born from the act of the administrative authority in which case the public institution is obliged to compensate the prejudice created. The application of the second theory is much more complicated and has an entire history linked to civil law in its background. In the Roman age, the unpredictability theory was not generally established and it was interpreted only through a series of directives applied to certain cases. It was later reflected in the works of Saint Thomas Aquinas in the medieval times, but it did not represent an issue of much interest to the legal professionals of his age (Pătru, 2011, p. 125).
After the evolution and ratification of the pacta sunt servanda (agreements must be kept) principle, especially in the Napoleonian Code of 1804, a few reserves were put forward regarding the establishment of a legal definition of unpredictability in the common law (Malaurie, 2009, p. 397). From a civil law perspective, the contractual unpredictability was officially challenged by the French Court of Cassation in 1876. In this case, a court stated that the irrigation of the Craponne Canal – which had been determined by the royalties in the 14th century – needed to be increased as the economic situation changed throughout the centuries. Although the unpredictability mechanism was applied correctly, the judgement was denied by the High Court. Later, in 1916, the unpredictability theory was recognised in administrative law in the „Gaz de Bordeaux” decision. On this occasion, the adjustment of a gas supply contract was acknowledged in order to prevent the disconnection of the gas supply to Bordeaux due to the bankruptcy of the debtor caused by war (Berthelemy, 1933, p. 718). The difference between the approaches of private and public law was decreased by the fact that the public interest was overwhelmed by the public transactions. However, such a rationale obviously found no consideration in private transactions. In Romania the jurisprudence tended to acknowledge the unpredictability theory, though there was no legal implementation, just in the opposite manner: first in the private law with the Lascăr Catargiu v. Bercovici Bank Case in 1920 (Piperea, 2014), then in public law, based on a decision of the Galați Arbitral Commission from 1925 (Tarangul, 1944, p. 421-422).
2. Civil unpredictability vs. administrative unpredictability
The establishment of unpredictability in the Romanian New Civil Code through Article 1271 in 2011 – combined with the particularity of public law – indicates some similarities and differences of unpredictability in the two major domains that could further our analysis. As for the similarities, both types of unpredictability could arise when an exceptional change of the circumstances takes place after the conclusion of the contract, since these situations might make the debtor’s obligation clearly unjust. Moreover, in the second case, if the conclusion and the performance of the contract take place at the same time, the occurrence of an external factor is impossible as both parties are aware of the circumstances that could affect the contract-making progress. Finally, according to Article 1271, the debtor is entitled in both cases to negotiate the adaptability of the contract with good faith and within a reasonable time frame.
A difference between the two types of unpredictability is that the main effect in civil law is the financial rebalancing of the contract to avoid a severe situation caused by onerousness, whereas in the case of a public contract the re-establishment of the financial balance to prevent bankruptcy has its own reason in the continuity of the public service (Avram I., 2003, p. 180). Another difference is that while in the civil legislation the exceptional change of circumstances could arise from some unexpected situations, in the case of administrative contracts unpredictability could be applicable based on the changes made by one of the parties, mainly the public authority, which could generate the excessive onerousness. This type of power exists because the unilateral amendment of the contract could be implemented when the public interest makes it necessary. In other words, this type of law – primarily administrative law – cannot be exerted in a discretionary manner, but only if the respective amendment is required by a more appropriate adaptation of the contract to fulfil the necessities of public policy.
3. „Le fait du prince” vs. unpredictability in public law
Interesting aspects could be highlighted when we compare the two main theories to see how the fundaments of the financial balance principle are working in strict cases. As I affirmed earlier, the „le fait du prince” theory entails that the public authority can unilaterally amend the essential conditions of the public contracts, which means that it will later be obliged to pay a compensation to the other party due to its action. Such a solution was regulated by Article 53 of Emergency Ordinance No. 54/2006 regarding the regime of concession agreements of public property assets. This states that the grantor can unilaterally modify the concession agreement – after the prior notification of the grantee – if there are exceptional motives of national or local interest. If prejudice takes place, the public authority must provide a fair compensation. If the parties do not reach an agreement regarding the compensation, the court will intervene and establish the fair sum. Therefore, I consider that every time a unilateral amendment of the contract is done by the public authority, the „le fait du prince” theory is applicable. For example, when a local public authority leases a complex with two pools and realises shortly thereafter that there is a local public interest to exploit the complex. The authority unilaterally amends the agreement and takes back one of the pools after notifying the grantee. In this case, the institution will be obliged to pay a fair compensation and if this cannot be settled by the parties, the court will fix the fair share in equal manner.
The unpredictability theory was also recognised in concession agreements by means of Article 54 of the Emergency Ordinance, which mentions that the contractual relationships between the grantor and the grantee are based on the financial balance principle of the concession among the rights granted to the grantee and the obligations imposed. Moreover, the grantee is not obliged to take the additional burden if it occurs as a consequence of an act of administration or caused by force majeure (an unexpected event) or unforeseeable circumstances.
Firstly, I consider that after the definition of unpredictability provided by the New Civil Code, the financial balance principle is based on the two theories and is not limited to one of them. Secondly, though it is mentioned that a burden increase will not be borne if it occurs as a result of an act of administration, I conclude that the legislator integrated the two theories into one text. Self-evidently, the current regulation could create confusion, but there are different hypotheses in this case. I take the view that through a measure that was made available by the public authority – which is not directly linked to the concession agreement but can affect it indirectly – the provisions of Article 54 of the Emergency Ordinance and those of Article 1271 of the New Civil Code are applicable. If the public authority unilaterally and directly modifies the concession agreement, the rules of „le fait du prince”, subsequently those of Article 53 of the Emergency Ordinance, will be applicable.
For example, when a 5% VAT is assigned to a good by a local public authority and a new government ordinance – entering into force after the conclusion of the agreement – increases the same VAT to 25%, thus causing a severe damage to the grantee, the mechanism of Article 54 of the Emergency Ordinance is applicable. We can observe that in this case the measure was introduced by the central public authority (the government), a party which is opposite to the initial agreement. This is why the hypothesis may also occur when the unpredictability is caused by the decision of the public authority, party to the contract, which is not directly linked to the obligations articulated in the concession.
To illustrate this, I would mention a building that is the object of a concession agreement with a local public authority by which the grantee wants to carry out commercial activity. If the same authority makes changes in the general municipal plan to the area where the building is located after the conclusion of the contract and the measure could affect the customer base of the grantee, Article 54 of the Emergency Ordinance and Article 1271 of the New Civil Code become applicable. It can also be added that the unpredictability could not only be caused by an indirect act of administration, but also by other events that could affect the contract (for example, a war).
One last difference that was highlighted by the doctrine (Zamșa, 2006, p. 314) refers to the compensation of the private party. In the case of the act of administration theory, the allowance might be allocated to fully cover the loss caused by the general administrative measure, whereas in the case of unpredictability the sum does not amount to the complete remediation of the situation but has its rationality in the continuity of the public service. As for public acquisition agreements – which are regulated by Law 98/2016 – there are many dispositions like those in Articles 53-54 of the Emergency Ordinance. In my view, the arguments presented for the applicability of the financial balance principle in the concession agreements shall also pertain to public acquisitions and to other types of administrative contracts, either regulated or non-regulated.
Public authorities are constrained to conclude many administrative contracts in order to maintain their activities successfully. As their legal relationships could justify numerous and substantial modifications, it can be concluded that one of the principles which might guide their relations to private parties, the financial balance principle, needs to be applied carefully and correctly. Therefore, I assume that this principle – based on the two theories described above – represents one of the best methods to re-establish a contract for the purposes of preserving the balance between the parties’ rights and obligations. Under the current circumstances, there are not many rules that contain a deeper analysis of this principle, mainly because the contractual unpredictability theory was officially specified in 2011 in the New Romanian Civil Code. For now, discussions regarding this theory are emphasised in the decisions of the Romanian Constitutional Court in terms of forced giving in payment (Bercea, 2017, p. 24-52) or the enforcement of some power of law values for the applicability of unpredictability.
By Andrei Pruna
This article was originally published in issue 6.2 of the magazine, which can be accessed here. All references used can be found at the end of that issue.