The essentials A penalty clause in a will that requires an estate to be partitioned through amicable agreement and states that recourse to the courts will have the effect of reducing the claimant's share to the so-called “hereditary reserve” (portion of the estate reserved to an heir by law) is deemed to be null and void where it unduly prejudices the right of an heir to claim partition of the estate. The Supreme Court of Appeal (Cour de Cassation) confirms that penalty clauses are subject to the principle of proportionality.
Supreme Court of Appeal 1 civ. div., 13 Apr. 2016, no. 15-13312, Michel Y v Jacques Y, PB (appeal dismissal v CA Grenoble, 16 Dec. 2014), Mrs Batut, Pres.; SCP Didier and Pinet, a civil-law professional partnership, SCP Hémery and Thomas-Raquin, lawyers, a civil-law professional partnership.
The second argument raised in the commented appeal judgement builds on that handed down by the same chamber of the Supreme Court of Appeal on 16 December 20151, and confirms the Court’s determination to restrict penalty clauses in respect of gifts by making them subject to a proportionality test.
The gift at issue in this case was granted under a holographic will executed on 1 December 1987 by Germaine X, specifying that the sole heirs to her estate were her two sons, Michel and Jacques, and stating that: “the partitioning of my property shall be by amicable agreement. All recourse to the courts will have the effect of reducing the share of my estate accruing to the person applying to the court to no more than the “hereditary reserve”.
Through this provision, referred to in practice as a “penalty clause”, the testatrix showed her determination to oblige her two sons to amicably agree on the partitioning of the property making up her estate, the aggrieved son otherwise seeing his half of the estate reduced to nothing more than the “hereditary reserve”, that is to say to one-third of the estate.
Following the death of Germaine X on 18 December 1993, part of the estate was amicably partitioned, but the two brother were unable to agree on the partitioning of commercial and industrial real-estate property located in Valence with a surface area of 19,590 sq. m; this therefore remained in tenancy in common between the brothers. In 2010, Jacques summonsed Michel in partition before the Valence regional court of first instance, thereby triggering a claim by Michel to the effect that Jacques’ rights be limited to the “hereditary reserve” in accordance with the penalty clause contained in the maternal will.
Jacques successfully challenged the application of the penalty clause before successive courts, arguing that it prevented the parties from having recourse to judicial partition, the party approaching the courts otherwise seeing his share reduced; he is thereby constrained to continue as a tenant in common unless he accepts the get-out terms and conditions imposed by Michel.
The Grenoble Court of Appeal based its ruling on Articles 815 and 900 of the Civil Code and upheld the public policy nature of the right to partitioning, ruling that the penalty clause was null and void. For the appeal judges, the penalty clause contained in the will “had the effect of keeping the parties in a tenancy in common if no amicable partition was possible (in this specific case, for more than 20 years) and imposing constraints, and, in the absence of a judgement or agreement, the public policy right to claim partition, derived by every tenant in common from Article 815 and applicable to the parties and to the writer, was thereby undermined”.
Seized on appeal by Michel, the Supreme Court of Appeal confirmed the appeal ruling in the following terms, adding, however, the notion of ”undue prejudice” of the right to claim partition: “on appropriate and established grounds, the ruling points to the fact that, because of the adverse consequences, the clause at issue is such as to prevent termination of the tenancy in common should one of those tenants in common reject an amicable partition or no agreement be reached on the terms and conditions therefore; that after having noted that, despite the partial partitions that have be made, the buildings had remained in tenancy in common for more than twenty years, the court of appeal has been able to decide that this clause should be deemed null and void since it had the effect of unduly prejudicing an absolute right to claim partition that was recognised for all tenants in common”;
1. A long-awaited solution: a penalty clause conflicting with the absolute right to claim partition through the courts is deemed to be null and void
The judgement commented on relies on the “absolute” nature of the right to claim partition in upholding the decision by the court of appeal that the penalty clause should be deemed null and void. Article 815 of the Civil Code states, indeed, that no-one can be compelled to remain in a tenancy in common and that partition may always be claimed, unless this right has been suspended under a judgement or agreement. The right to claim partition at any time has, moreover, a constitutional value; it is the expression of the fundamental nature of ownership2.
It is settled case law that a penalty clause is null and void when it seeks to enforce provisions contrary to those proscribed by the law or public policy. Consequently, a penalty clause does not apply to an heir bringing an action that would reduce a gift and that prejudices his right to the “hereditary reserve”, a public policy right3.
The judgement commented on is therefore entirely in line with case-law tradition, simple giving a new illustration of the invalidity of a penalty clause when the provision contested undermines a mandatory provision, in the case at issue the right to claim partition.
This judgement therefore has a more limited scope than that of 16 December 2015 referred to above that reversed case law in that although a penalty clause only protects private interests, the Supreme Court of Appeal makes its application conditional on the right to bring proceedings before the courts not being unduly prejudiced. In the case at issue, the validity of a shared gift was contested on the ground of fraud and, had the action for annulment of the shared gift failed, it would have led unquestionably to the application of the penalty clause.
Furthermore, the judgement of 13 April 2016 is of significance in that, with the wording used - “undue prejudice” of the right to bring proceedings arising from the penalty clause - it is in line with that of 16 December 2015 and confirms the Supreme Court of Appeal’s determination to uphold the principle of proportionality in respect of the application of a penalty clause relating to a gift.
2. A solution that raises questions about what constitutes undue prejudice to the right to bring an action for partition in respect of a penalty clause.
In its Judgement of 16 December 2015, the Supreme Court of Appeal set aside the appeals court ruling for lack of legal basis in the light of Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms. It criticised the appeal judges for not having looked at whether the clause did not have the affect of unduly prejudicing the right of the claimant heirs to take action before the courts. The Supreme Court did not, however, lay down any criteria for assessing any possible abuse, leaving them to be determined by the appeals court on remittal so that it could be assessed, in the light of the facts, whether or not the prejudice caused by the penalty clause to the right to take action before the courts was proportional to the underlying intention of this clause4.
In the judgement commented on, the notion of undue prejudice to the right to bring an action before the courts is again used by the Supreme Court of Appeal, showing its determination to apply the proportionality test systematically. With a concern - it would seem - to justify the undue nature of the prejudice to the right to bring action in partition caused by the clause at issue, the Supreme Court of Appeal makes a particular point, in its preamble, of basing its ruling on the analysis of the facts conducted by the appeal judges, specifying that partial partitions had been undertaken and that the buildings had been in tenancy in common for more than twenty years. It is clear that these facts gave some form of legitimacy to the claimant’s action before the courts to obtain the partition of these buildings.
However, for application of the clause at issue to be precluded, the “absolute” nature of the right for a tenant in common to claim partition should obviate the need to show that the clause causes undue prejudice to his right to take action. In addition, the requirements for the admissibility of an action for partition laid down in Article 1360 of the Code of Civil Procedure pursuant to Decree no. 2006-1805 of 23 December 2006 preclude any risks of abuse of judicial process. The writ of summons must, indeed, now set out the intentions of the claimant as regards the partition of the property, as well as the measures undertaken with a view to achieving an amicable partition. If an action for judicial partition is admissible, meaning that attempts at amicable partition have made, there would therefore be no abuse in bringing an action, leastways for proceedings brought since 1 January 2007.
The scale of the sanction imposed under a penalty clause is not, however, a criterion that case law - which is evolving - seems to take into account, the proportionality test only being envisaged in respect of the right to bring an action before the courts. That being said, as stated by an eminent scholar, the severity of the penalty could be taken into account in a proportionality test5. Moreover, in its preamble, the Supreme Court of Appeal alludes to the damaging consequences of the clause at issue. It is true that, as currently drafted, the penalty established by the clause could seem excessively burdensome since it results in being deprived of the entire disposable share, equating to one-third of the estate. Thus, no account was taken of the fact that partial partitions had already been possible.
In the light of all these factors, the drafting of penalty clauses must be reframed6. Reflection on this matter is only just beginning.
1 V. Lerond S. in “Chronique de jurisprudence de droit privé du patrimoine”, French Court Gazette (Gazette du Palais) 31 May 2016, no. 266m2, p. 70.
2 Constitutional Council, 9 Nov. 1999, re 99-419 DC, Civil Partnership Agreement Act (Loi relative au pacte civil de solidarité): Official Gazette, 16 Nov. 1999; Quarterly Review of Civil Law 2000, p. 870, comm. Revel T
3 Supreme Court of Appeal civ., 10 March 1970, no. 68-13205: “1. A child who claims to be the injured party may contest the partition on the ground that it prejudices his “hereditary reserve” without incurring the penalty laid down if it can be established that his “hereditary reserve” is diminished by the provisions of the father”; Supreme Court of Appeal 1 civ., 20 Feb. 2007 Quarterly Review of Civil Law 2008, p. 134
4 On the analysis of the judgement, see not. Le Bars T, “Revirement de jurisprudence sur les clauses dites pénales en droit des libéralités”, D. 2016, p. 578; Grimaldi M., “La clause pénale qui porte une atteinte excessive au droit d'agir en justice ou au droit de demander le partage est réputée non écrite”, Quarterly Review of Civil Law 2016, p. 424; Leyrat H., “Quel avenir pour les clauses pénales insérées dans les libéralités?”, Defiénois 30 June 2016, no. 123t3, p. 683.
5 Grimaldi M., aforementioned art.
6 On this point, Leyrat H., aforementioned art.
French Court Gazette (Gazette du Palais), 13 September 2016 - N° 31