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Terminating a business relationship within an international context: how to avoid the indemnification provided for in article L.442-6-I-5° of the French commercial code?
The question remains, again and again: may a party to an international contract, which would decide to terminate its business relationship with its French contractor, avoid the 2-year gross margin indemnification generally granted by French courts, pursuant to article L.442-6-I para.5 of the French commercial code[1] (“FCC”)? And if possible, how to do so?
This issue, already addressed in our previous article deserves further developments, based on recent case law facing contractual practice.
As a matter of fact, the Court of Justice of the European Union dated 14 July 2016[2] reestablishes the contract in its rights and clearly contradicts French case law which has long considered, invariably and for many years, the “tort law” nature of the liability (“responsabilité délictuelle”) derived from the action based on article L.442-6-I para.5 of the FCC.
It is this traditional position– misunderstood beyond French boundaries – which has often led French courts to apply article L.442-6-I par.5 and to grant the feared indemnification, in disregard of the choice of law and forum selection clause elected by the parties in the international contract.
Since the liability related to the action introduced on the basis of precited article is of a “tortious” nature, applicable law and competent courts would necessarily be those of the “place where the damage occurred” for the French victim, meaning French law regarded as public order rule. Even if French case law has recently softened its position as regards the inescapable jurisdiction of French courts (in case of a forum selection clause appointing foreign courts) – see footnote n°3 – the “tortious” nature of the liability, always reaffirmed, is still justifying, for French courts, the application of French law, as a mandatory rule, to the “merits of the case”.
Yet, in its Granarolo decision, the Court of Justice of the European Union – which decisions should normally impose on State Members courts – considers that: “an action for damages founded on an abrupt termination of a long-standing business relationship (…) is not a matter relating to tort, delict or quasi-delict within the meaning of that regulation [article 5 point 3 of EC Regulation n°44/2001 of the Council dated 22 December 2000] if a tacit contractual relationship existed between the parties, a matter which is for the referring court to ascertain”.
The consequences of this important European decision, most criticized by French doctrine, are potentially very important and put back the contract at the center of the debate: indeed, if the « contractual » nature of the liability is acknowledged in case of a termination of a « tacit » contractual relationship (ie. not formalized), it should prove to be the rule, a fortiori, in case of a binding contract.
Therefore, in order to avoid the application of article L.442-6-I para.5 of the FCC, it is essential, first, not only to make sure that the French courts shall not have jurisdiction but also to soundly appoint foreign courts as competent courts.
A great care shall be thus brought to the drafting of the forum selection clause in order to ascertain that the seized French court shall not have other choice but to dismiss the case to the profit of foreign courts rightfully designated[3] : in order to be valid with respect to both French and European case law, the forum selection clause must be drafted in both general and specific terms.
Being scrupulous on how the forum selection clause should be drafted is the prerequisite in the attempt to avoid the indemnification based on article L.442-6-I para.5 of the FCC. Indeed, as long as the French judge will consider having jurisdiction over the case, he may be tempted to apply article L.442-6-I para.5 regarded, in France, as a public order rule.
The specific attention to the drafting of the forum selection clause shall not make one forget the importance, more than ever, of electing another law than French law. The drafting of such “applicable law” clause shall also require care and subtlety.
How the big comeback, through the Granarolo decision, of the freedom of choice in the litigation field, until then very preserved, of the abrupt termination of business relationship, shall be perceived by French Courts? Shall it be welcomed to the point that the latter will seriously question the “tort law” liability nature inferred from article L.442-6-I-5°?
This shall be followed with much interest. In the meantime, check your contracts!
Sarah Temple-Boyer
Attorney at law
[1] As a reminder, article L.442-6-I-5° of the FCC provides that: is liable for anyone who “terminate abruptly, even partially, an established commercial relationship, without any written prior notice taking into consideration the duration of the commercial relationship and the minimum prior notice, such as defined by trade customs or professional agreements”.
[2] CJUE, n°C-196/15, Decision of the Court, Granarolo SpA vs. Ambrosi Emmi France SA, 14 July 2016
[3] Indeed, it is now commonly admitted that the forum selection clause may apply, as soon as it relates to any dispute arising from the contract, « should mandatory rules known as public-order rules would apply to the merits of the case » (Supreme Court, Civil chamber. 1ere 22 octobre 2008, n°07-15.823) ; or again, "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” (Supreme Court, commercial chamber. 24 November 2015, n°14-14.924 ; CA Paris Pôle 1, Chambre 1, 15 December 2015). Or even lately, Supreme Court, Civil chamber, 18 January 2017, n°15-26.105.