France – Abrupt termination of contractual relationships and arbitration

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Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

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Alexandre Malan
  • Arbitration
  • Distribution
  • Insurance
  • International trade
  • Litigation

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