News January 2016: International contract – Breach of commercial relationship – competent court

International contract: is it somehow possible to escape from the exclusive jurisdiction of French courts within a dispute related to the breach of a commercial relationship with a French company? 

 

 

 

(ie. decisions from the French Supreme Court dated November 24, 2015 and from the Paris Court of Appeal dated December 15, 2015) 

 

We previously wrote on this matter which interests any foreign company that would terminate a commercial relationship with a French partner which may benefit of the protection stated under article L.442-6 I-5° of the French commercial code (see related publication).

Most foreign contractors often ignore the real risk which may arise from the immediate termination of an established commercial relationship with their French partner.

They may well know the financial cost attached to such termination (up to 2 million euros), under article L.442-6-I-5°, but they often wrongfully believe that they can avoid it, by providing a forum selection clause appointing a foreign court that will not, for sure, apply article L.442-6-I-5° - which is only regarded as a “public order rule” by French courts.

For some years though, some French courts’ decisions have contradicted this common belief by ruling, several times, that a forum selection clause appointing foreign courts was unenforceable, within the context of the termination of a commercial relationship when the victim was French; we successfully fought against this position, including before the French courts themselves (see related publication).

Still, those French courts’ decisions have seriously undermined the absolute trust, shared by most French and foreign lawyers, in the parties’ contractual freedom.

The reasoning of the French courts which challenged the enforceability of the forum selection clause is the following: even though such clause would be valid in its terms, it would be, in any case, inapplicable to a dispute grounded on tort law. As a matter of fact, under article L.442-6-I-5° (regarded as a “public order rule” applicable to the termination of an established commercial relationship), the terminating party‘s liability is necessarily grounded on “tort” law which consequently excludes any forum selection clause strictly applicable to a contractual relationship.

Here is, in a nutshell, what the French courts’ argumentation was in order to retain their own exclusive jurisdiction (despite any forum selection clause) as soon as the terminated party was French (under French tort law, the competent courts are those located where the damage is suffered – ie. French courts having jurisdiction over the case involving a French “victim”).

Two – very recent – decisions of November 24, 2015[1] and December 15, 2015[2] seriously challenge this argumentation which appears more and more difficult to sustain.

The outcome of both decisions gives a greater legal certainty to foreign contractors and, at the same time, helps improving the drafting of jurisdiction clauses.

 

1- Important reminder: in case there is no forum selection clause,  the competent court shall not be necessarily determined in consideration of French law,  should it be the contractual law or the “public order rule »

There is no fate anymore in terms of termination of an international commercial relationship, when the terminated party is French and even when French law is applicable.

It does not seem possible anymore for French courts – which would still be tempted to do it – to sustain that, in case of no forum selection clause, French courts’ jurisdiction must fully apply within an international context, even though article L. 442-6-I-5° of the French commercial law is actually applicable to the merits of the case.

Both decisions dated November 24 and December 15, 2015 are much clear in this respect: in an international contract, the competent court must be exclusively determined in consideration of European rules governing jurisdiction matters and regardless of any applicable law.

• Supreme Court’s decision dated November 24, 2015: « Considering that, in order to reject the jurisdiction procedural hitch raised in favor of German courts and after noticing the lack of a contractual forum selection clause pursuant to Article 23 of Bruxelles I Regulation, the decision states that the public-order rules, on which the claim is based, are mandatory for the French judge.

Stating that – whereas only the rules of conflict of jurisdiction must be referred to in order to determine the competent courts, even though public order rules should apply to the merits of the case, the Court of appeal has ruled in violation of the text and the related principles”.

• Paris Court of Appeal dated December 15, 2015: «Given that only the rules of conflict of jurisdiction must be implemented to determine the competent court, even though mandatory rules, such as, in the present case, article L.442-6-I-5° of the French commercial code, should apply to the merits of the case ».

This last decision of the Paris Court of Appeal is even more specific: the fact that, under Article L.442-6-I-5°, the liability raised by the termination of a contractual relationship is a tort liability rather than a contractual liability has no impact on the way to determine the competent court.

It is not up to the applicable law (in the present case, the French law) to decide whether or not the dispute falls under « the contractual field » or the « tort field » in order to determine accordingly the competent court. The applicable rules of conflict of jurisdiction, in particular Article 5 of Regulation 44/2001 of December 22, 2000[3] and their interpretation by European Courts, are the only rules that should be referred to.

• Paris Court of Appeal dated December 15, 2015 : « Given that, under French law, the abrupt termination of a commercial relationship without a written prior notice gives rise to a tort liability, it is commonly admitted by the European Court of justice that the notion of « contractual matter » must be construed autonomously, by referring to the systems and objectives of the regulation, in order to make sure that the latter applies equally in all contracting Member States. Consequently, such notion should not be construed as referring to the legal qualification granted by national law before national courts.

Given that the European Union Court of Justice considers that the « tort matter » has a residual character and that a claim which is not based upon « a free commitment from one party to the other » relates to the « tort matter »; tort matter relates to any claim which purpose is to incur defendant’s liability and which does not relate to the « contract matter » as per Article 5.1 of the Regulation.

Given that, in the present case, the termination of the contractual relationship, its abusive or non- abusive character falls within the scope of the « contractual matter » pursuant to Article 5.1 of Regulation 44/2001 ».

To conclude with: in case of lacking or invalid forum selection clause in an international context, the competent court – within the context of a dispute caused by the termination of a commercial relationship – should be determined pursuant to the rules of conflict of jurisdiction defined under Article 5 of Regulation 44/2001 and never in consideration of the French law rules, including public order rules.

These decisions confer a greater legal certainty to international commercial relationships, even in case of a lack of forum selection clause.

 

2- Useful reminder of drafting tools for a valid and enforceable forum selection clause, within the context of an international commercial relationship

In any case, a greater legal certainty can be ensured, within the context of international relationships, through a forum selection clause (appointing a foreign court) provided that the latter clause meets the validity and enforceability requirements prescribed under article 23-1 of Regulation 44/2001[4].

We previously referred to these requirements as “intrinsic” qualities of the forum selection clause (please report to our previous publication on this matter).

Those conditions of validity and enforceability are reminded under the Supreme Court’s decision dated November 24, 2015:  

• the forum selection clause must meet some substantive conditions : first, it must have been agreed in relation to a « specific legal relationship ». It cannot be used/enforced in a general way, regardless of the legal relationship existing between the contracting parties. Therefore, such clause must be subscribed, for instance, within the framework of a sale contract or regular commercial orders (and thus, be included in general conditions of sale attached to order forms which expressly refer to those sale conditions).

The Supreme Court, in a recent decision[5], recalls that the « legal relationship » referred to in precited Article 23-1 must be restrictively construed which must lead to the exclusion of the forum selection clause within the context of a dispute relating to an indemnification claim for anticompetitive practices (the terms of the forum selection clause did not provide for its application in such context)

• the forum selection clause must also meet conditions of form :

• it must be drafted in a visible and legible form « in writing or orally with written confirmation or under another form compliant with the habits governing the parties’ relations » or under any other form which could be compliant with an international use.

• There must be no doubt on the fact that the commercial partner has been informed of such clause and has expressly accepted it.

 

by Sarah Temple-Boyer

 

 

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[1] Com. 24 novembre 2015 n°14-14.924

[2] Paris Court of Appeal, Pôle 1, Chambre 1, 15 décembre 2015

[3] Article 5 of EC Regulation 44/2001 dated December 22, 2000 :

« A person domiciled in a Member State may, in another Member State, be sued:

1. (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;

(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:

- in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered,

- in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided,

(c) if subparagraph (b) does not apply then subparagraph (a) applies;

 (….)

3)     in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur (…)”

 

[4] Article 23-1 of EC Regulation 44/2001 :

“If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:

(a) in writing or evidenced in writing; or

(b) in a form which accords with practices which the parties have established between themselves; or

(c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned”

 

[5] Civ. 1^ère, 7 octobre 2015 n°14-16.898