News May 2024: Having an international contract governed by one’s own law is not always the best choice!

• Reminder:

A new ruling by the Commercial Chamber of the Court of Cassation on 20 March 2024, again handed down in the context of an international commercial agency contract, serves as a useful reminder that the choice of one’s law is not always appropriate.  

We already pointed out, in a previously commented decision, that opting for one's own law can have counterproductive effects and that it is best to be fully aware of its content and possible pitfalls before considering it a negotiation key-point.

In the commented judgment of 11 January 2023, the French principal was compelled to pay a Canadian commercial agent a substantial termination indemnity - something he would probably have been spared of if he had not chosen French law.

 

• What should we learn from the Cour de Cassation's decision of 20 March 2024?

Bis repetita with this ruling of 20 March 2024.

The circumstances are virtually the same, except for the nationality of the sales agent, which in this case was a company incorporated under Mexican law that had received an exclusive mandate from a French company to sell equipment in its name and on its behalf in several Latin American countries.

After initiating the termination of the contract and being ordered to pay more than 600,000 euros in various indemnities and commissions, the French principal company challenged the Mexican company's right to claim protection under French legislation relating to commercial agents (article L.134-1 et seq. of the French Commercial Code) on the grounds that those provisions, resulting from the transposition of European Directive 86/643/EEC of 18 December 1986, could not be applied to a company operating in a territory outside the European Union.

Once again, the Cour of Cassation rejected the principal's arguments, pointing out, as in the judgment of 11 January 2023, that:

- .....while the protective provisions of Directive 86/653/EEC of 18 December 1986 do not necessarily apply to a commercial agent established and carrying on business outside the territory of the European Union (CJEU, judgment of 16 February 2017, C-507/15, Agro Foreign Trade & Agency)......

- ..... such an agent operating outside the European Union may nevertheless benefit of such protective provisions if the parties have chosen to make their agency agreement subject to a law providing for such protection.

In so doing, the Cour de cassation once again outlines that the parties’ autonomous will should always prevail over international l law general provisions.

• What does this mean in practice?

The choice of law applicable to a contract requires careful consideration, as it inevitably has an impact on the rights and obligations of the contracting parties.

There is a tendency to believe that choosing one's own law is an advantage and a guarantee of better protection in the event of a dispute.

The best is sometimes the enemy of the good, and it is better to think carefully, depending on your contractual position and the risks inherent in each situation, before choosing the best law, which could be, for once, that of the other party.

This calculated waiver of one's own law could also prove to be a good negotiating leverage for other strategic points.

 

Sarah Temple-Boyer                                                                            Jessica Pereira Quaresma

Lawyer                                                                                                Legal Intern