Menu

Legal News - February 2024: The importance of the choice of law in an international commercial agency contract and other useful lessons for a principal

Legal News - February 2024: The importance of the choice of law in an international commercial agency contract and other useful lessons for a principal
  • Reminder:

Some still tend to negotiate vigorously in order to get their own law governing an international contract, assuming that a contract governed by a familiar law is always an advantage. It is often preferable, but not systematically...

A decision of the French Supreme Court (Cour de Cassation) dated 11 January 2023, in the context of an international commercial agency contract, usefully reminds us of this, among other insightful lessons.

  • What is worth noting in the decision of the French Supreme Court?

In the case brought before the Cour de Cassation, a French company specializing in the marketing of wines and spirits (more specifically, Rémy Cointreau) entrusted, as of 2008, a Canadian company with the promotion of its products in Canada. The Parties had elected the French law, as the governing law of the so-called "Exclusive Agency Agreement".

Following the termination of the contract by the French company a few years later, the Canadian company claimed payment of a termination indemnity of 3 million euros, pursuant to Article L134-12 of the French Commercial Code (which application generally leads to an indemnity equal to two years of gross commissions).

The French principal questioned the agent's right to the indemnity, arguing that:

- the benefit of the termination indemnity, pursuant to the European Directive 86/643/EEC and French law, could not benefit a company operating in a third territory located outside the European Union.

-  The Canadian agent could not be regarded as an agent in the meaning of the European/French rules (and therefore could not claim for the legal protection), since he was not granted with the possibility to negotiate or change the prices of the products, due to the Canadian state monopoly on the distribution of alcohol. Thus, the the Canadian agent’s assignment was necessarily limited to the sole role of an intermediary or service provider.

None of these arguments was a success before the Cour de cassation, which held that the Canadian agent could effectively claim for the termination indemnity pursuant to article L.134-13 of the French Commercial Code, due to the following reasons:

1) Since the parties have freely elected French law as the governing law , the Canadian agent could indeed claim for the legal protection provided by Articles L.134-1 et seq. of the French Commercial Code, along with the resulting termination indemnity.

2) The Cour de cassation – following a previous change in its case law (Cass. com., 2 December 2020, no. 18-20.231) in line with a judgment of the European Court of Justice (“ECJ”) dated  4 June 2020, case C-828/18) – ruled that, in order to benefit of the protective legal status, a commercial agent is not required to have the ability to negotiate or modify the conditions and prices of the marketed goods.

3) Finally, the Cour de Cassation emphasizes an interesting point: even if the Cour de Cassation case law (when French law was elected as the governing law) used to rule differently, the commented decision outlines that "legal certainty does not establish a vested right to a fixed case law". Since the law interpretation is likely to evolve through case law, the parties should never consider the case law prevailing when the choice of law was made as an "acquired right" against which all subsequent disputes shall be construed.

  • What are the practical lessons to be learned from this decision?

In order to enhance legal certainty, the choice of law applicable to a contract must be carefully considered, without assuming that the law will always be construed in the light of the case law existing when the choice was made.

Therefore, the choice of the governing law in a contract must be made with both rigor and a certain degree of philosophy, bearing in mind that not everything can be foreseen in advance, and that there is no such thing as absolute legal certainty.

In this case, what is certain is that the choice of French law, which was undoubtedly guided by the French principal, entailed itself a risk as it gave the Canadian agent an opportunity to claim for legal protection under French law, that he would not have been entitled to, should the contract have been governed by another law.

Indeed, if Canadian law had been chosen, the agent would have the greatest difficulty to benefit of the same termination indemnity, as the status or commercial agents is far less protected in Canada.

In this context, the question of whether the agent should (or should not) be regarded as a commercial agent - given the fluctuating case law of ECJ or French courts - was ultimately secondary compared to the initial risky choice of French law.

 

Sarah Temple-Boyer                                                                            Jessica Pereira Quaresma

Avocat                                                                                                Legal Trainee                                      

Publié le 07/02/2024