News: breach of a relationship - international contract - forum selection clause

Breach of an established business relationship: a recent court decision reaffirms the importance of the forum selection clause in international contracts                                                                                                                                                

The fact that a claim for breach of an established business relationship (Article L.442-6-I-5° of the French Commercial Code, hereinafter “FCC”) brought in the context of a domestic dispute is a tort action under French law is now rather widely admitted.

The difference of opinion between the First Civil Chamber and the Commercial Chamber of the Cour de Cassation (French Supreme Court) concerns (i) the characterization of liability (i.e. contractual liability vs. tort liability) under Article L.442-6-I-5 of the FCC in the context of international disputes and (ii) the consequences that such characterization of liability has on the enforceability of a forum selection clause conferring jurisdiction to a court other than a French court^[1].

While it is established that, in the framework of an international dispute, the First Civil Chamber of the Cour de Cassation considers that the arbitration clause^[2] or forum selection clause is enforceable against “mandatory legal provisions constituting so-called lois de police – such as those set forth in Article L.442-6 – should such provisions be applicable”^[3], the Commercial Chamber of the Cour de Cassation appeared so far to quite systematically deny the application of a forum selection clause^[4] in relation to claims brought under Article L.442-6-I-5 of the FCC and to admit the jurisdiction of the courts designated as competent pursuant to jurisdictional rules applicable to tort actions^[5].

Yet, we have always believed that this difference of opinion between the two Chambers of the Cour de Cassation on the applicability of forum selection clauses – a difference of opinion apparently irreconcilable and considered as such by many legal commentators – was in fact merely superficial and that an in-depth legal analysis would reveal that the positions adopted by these two Chambers were not as incompatible as they might appear at first glance. 

This is the argumentation that we successfully developed before the Paris Commercial Court in a case where our client, a US corporation, was sued by its French distributor for sudden and abusive breach of business relationships that had lasted for more than 20 years. In the end, the Paris Commercial Court ruled that it lacked territorial jurisdiction to hear the claim brought by the French plaintiff.

As expected, the French plaintiff had brought its claim before the Paris Commercial Court on the basis of Article L.442-6-I-5° of the FCC.

In these circumstances and in order to convince the Paris Commercial Court to rule in favor of our client and to decline jurisdiction, we had to establish, in limine litis (i.e. before addressing the merits of the case), that the forum selection clause included in the distributor agreement entered into between the parties and according to which Florida courts had exclusive jurisdiction was fully enforceable.

For that, we had to counter the arguments put forth by the plaintiff – which arguments were apparently supported by the aforementioned court decisions – according to which the Commercial Chamber of the Cour de Cassation would deny, as a matter of principle, the enforceability of the forum selection clause insofar as the claim was brought in tort.

We successfully demonstrated, in a two-step approach, that:

• the assumption according to which, in such a dispute, the Commercial Chamber would, as a matter of principle, hold the forum selection clause unenforceable and inapplicable was erroneous (1); and
• The application of the forum selection clause could only be potentially denied to the extent that such clause had not been accepted by the parties and that its wording was too restrictive (2).

1- Rebutting the assumption according to which the Commercial Chamber of the Cour de Cassation would, as a matter of principle, deny the application of the forum selection clause

After having criticized and seriously discredited the court decisions relied upon by the plaintiff (because such decisions related only to purely domestic disputes or did not address the issue of the forum selection clause), we established that the only two decisions mentioned by the plaintiff that were transposable to the dispute at hand did not preclude, as a matter of principle, the application of the forum selection clause.

To substantiate our argumentation, we pointed out that it was implicit in these two decisions that the Commercial Chamber of the Cour de Cassation had decided to deny the application of the relevant forum selection clauses because such clauses, by their wording, were unlikely to cover disputes arising from a breach of business relationships.

As such, according to the ancillary arguments developed by the litigants and reproduced in the decision handed down by the Commercial Chamber on September 15, 2009, the forum selection clause had been found unenforceable precisely because it “could only be effective with regards to the relevant orders and was not, therefore, applicable to a dispute that relates not to a specific order but to a breach of an established business relationship”. The findings of the decision rendered on March 9, 2010 was even more enlightening as the Commercial Chamber upheld the decision of the trial judges who had considered that the forum selection clause was unenforceable because it did not cover the breach of business relationships “without [however] setting aside, as a matter of principle, the forum selection clause contractually agreed upon by the parties on the ground that the initiated action (…) would be founded on tortious liability (…).”

In fact, these court decisions relied upon by the plaintiff supported our own analysis that only the intrinsic features of the forum selection clause, i.e. its enforceability and its scope of application, ought to be taken into account to decide whether such a clause should be applied or denied.

2- A forum selection clause can only potentially be set aside for reasons that are intrinsic to it (lack of enforceability and too limited scope of application)

In our submissions and during the pleading hearing, we argued that, in the end, the reasons for setting aside a forum selection clause in the context of an international dispute brought on the basis of Article L.442-6-I-5° of the FCC were simply due to the fact that :

• the relevant forum selection clause had not been expressly accepted by the parties and was therefore de facto unenforceable (Commercial Chamber of the Cour de Cassation, January 18, 2011^[6]).
• The relevant forum selection clause was not likely to cover, by its very purpose, the disputes arising from the breach of an established business relationship (cf., in particular, the aforementioned court decisions: Commercial Chamber of the Cour de Cassation, September 15, 2009 and March 9, 2010).

We suggested that the court should rule otherwise when the forum selection clause applies to any disputes “arising from the contract”^[7] or “in connection with the breach of contractual relationships”^[8] – such terms deemed, according to the above-referred court decisions, sufficiently ”broad” to cover claims brought under Article .L442-6 of the FCC. In addition, the decision rendered by the Commercial Chamber of the Cour de Cassation on March 20, 2012 further strengthened our position^[9].

Precisely, in the case at hand, it was indisputable that:

• the forum selection clause had been expressly accepted (as it was part of an agreement signed by both parties, it being specified, in addition, that the plaintiff itself had produced the distributor agreement as its main exhibit); and the forum selection clause was drafted in sufficiently broad terms (without even referring to the agreement entered into between the parties) to cover the dispute at hand^[10]: the two French translations of the English-drafted clause overlapped. Specifically, the clause stipulated as follows:

“Distributor [i.e. the Plaintiff] agrees that any suit brought by Distributor against [the Defendant] or arising from any claim or dispute relating thereto, shall be brought only in the State Court of proper Jurisdiction for [the Defendant] county, Florida, or in the U.S. District Court for the le Middle District de Floride, and in no other jurisdiction”.

In a very well-grounded decision dated September 27, 2012, the Paris Commercial Court, following each step of our legal reasoning, ruled in favor of our client and, having noted that the plaintiff had expressly accepted the forum selection clause, held that such clause was fully applicable in the context of the dispute at hand:

“Whereas this forum selection clause set forth in the agreement is drafted in extremely broad terms; it is therefore applicable to all commercial relationships referred to in Article L.442-6-I-5 of the French Commercial Code; the Court shall hold that it consequently “covers” disputes arising from a breach of the business relationship between the parties,

Whereas, it is only thereafter that the court having jurisdiction on the merits will be able to rule whether the decision [of the Defendant] complied with the contractual provisions and thus to determine the nature of [the Defendant] liability sought [by the Plaintiff] under Article L.442-6-I-5° of the French Commercial Code.

Whereas, according to an established case-law, a forum selection clause contained in an agreement, insofar as such clause covers the elements of the dispute, must be enforced even if the mandatory provisions set forth in Article L.442-6-I-5° may, as appropriate, be applicable after an examination on the merits of the case; the court found that it was the case in the present matter”.

Accordingly, and to our greatest satisfaction (!), the Paris Commercial Court ruled that it lacked territorial jurisdiction and – as per the standard formulation – invited the plaintiff to bring the case before the Florida courts.  

This decision may also appear quite liberal as it specifies that it is up to the court having jurisdiction to rule on the merits of the case to determine the nature of the liability potentially incurred by the US defendant (i.e. tort liability vs. contractual liability), depending on whether the business relationship was terminated in compliance with applicable contractual provisions – the mere fact that the claim was brought on the basis of Article L.442-6 being not in itself enough to prejudge the nature of the incurred liability.

This clearly shows that commercial courts, when properly guided, will not systematically sweep aside a forum selection clause, even if the claim is brought in tort.

Yet, as a prerequisite, the forum selection clause must have been (i) expressly accepted by the party against whom its enforcement is sought, and (ii) properly drafted at the outset!

 

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[1] For more information on the type of liability incurred in relation to a claim brought on the basis of Article L.442-6-I-5 of the FCC, please refer to articles published in our July/ August 2010 and November 2010 e-newsletters.

[2] First Civil Chamber of the Cour de Cassation, July 8, 2010 – it should be noted, however, that the applicability of an arbitration clause in relation to a claim brought on the basis of Article L.442-6 of the FCC is less debated than the applicability of a forum selection clause brought in the same context, primarily because of the so-called competence-competence principle in arbitration matters, which de facto renders the application of the jurisdiction clause almost inevitable.

[3] First Civil Chamber of the Cour de Cassation, October 22, 2008.

[4] Commercial Chamber of the Cour de Cassation, September 15, 2009, March 9, 2010.

[5] Article 46 of the French Code of Civil Procedure “the claimant may, at its election and besides the court having jurisdiction over the territory where the defendant is domiciled, initiate proceedings: (…) in tort matters before the court having jurisdiction over the territory where the harmful event occurred or where the damage was suffered”. Between European Union nationals, please refer to Article 5.3 of Council Regulation (EC) No 44/2001 according to which a person domiciled in a Member State may, in another Member State, be sued “in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur“.

[6] Extract of the January 18, 2011 decision of the Commercial Chamber of the Cour de Cassation: “(…) the acceptance of a forum selection clause by the company Coprima is not established; based on these findings and elements, the Court of Appeals that, at its sole discretion, held that the absence, in the ongoing relationships between the parties, of a prior acceptance of the forum selection clause by the company against whom enforcement of such clause was sought (…) has legally justified its decision to deny the application thereof”.

[7] 1^st Civil Chamber of the Cour de Cassation, October 22, 2008: “the forum selection clause set forth in this contract covers any disputes arising from the contract and should, therefore, be applied irrespective of mandatory rules constituting lois de police – should such mandatory rules be applicable to the merits of the case”.

[8] 1^st Civil Chamber of the Cour de Cassation, March 6, 2007: “the forum selection clause (…) applied to all disputes arising from the breach of the contractual relationships between the parties, the Court of Appeals has rightfully considered that this clause, deemed valid as per Article 23 of Council Regulation (EC) No 44/2001 of December 22, 2000, granted exclusive jurisdiction to the designated contracting State”.

[9] Commercial Chamber of the Cour de Cassation, March 20, 2012: “the clause, that grants jurisdiction to German courts for all disputes arising from the contractual relationships, is sufficiently broad and understandable to cover disputes arising from a sudden partial breach of the business relationship between the parties, irrespective of the tort or contractual nature of the incurred liability”.

[10] It should noted that this forum selection clause was aimed at excluding the jurisdiction of French courts, not the application of Article L.442-6-I-5° considered as a loi de police (1^st Civil Chamber of the Cour de Cassation, October 22, 2008 RG 07-15823); in theory, US courts – that have exclusive jurisdiction according to the forum selection clause – should thus apply Article L.442-6-I-5 of the FCC, pursuant to… French private international law!