Distribution Agreements in France

Practical Guide

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How are distribution agreements regulated in France?

Distribution agreements are regulated by several sections of the French Civil Code (Code civil) and the French Commercial Code (Code de commerce). While there is not one particular section or chapter on distribution agreements, the subject is covered under several sections scattered throughout the different codes. Moreover, case law is an important source of law in distribution law.

Distribution agreements concern agreements through which a distributor purchases goods or services in order to resell them. The specific rules applicable to commercial agents (Art. L131- to L134-17 of the Commercial Code) are, in principle, not applicable to distribution agreements.

The relevant portions of the Codes are as follows:

Exclusivity in some distribution agreements (Art. L330-1 to L330-3 of the French Commercial Code) requiring a maximum duration for exclusive purchase agreements (See Section 3), and pre-contractual information for contracts by which the distributor is bound by exclusivity, and is obliged to use the supplier’s brand (See Section 2).

Post-contractual non-compete and termination clauses in retail or franchise networks (Art.L341-1 to L342-1 of the French Commercial Code) (See Sections 3 and 5) prohibiting certain clauses designed to restrict termination of distributorship agreements, and limit post-contractual freedom of competition.

General Terms and Conditions (Art. L441-1 to L441-2 of the French Commercial Code) defining the obligation to have General Terms and Conditions (GTC) in sales and distribution agreements, and the form of this GTC.

Transparency in commercial relationships (Art. L441-3 to L441-8 of the French Commercial Code) creating an obligation to enter into agreements to formalize commercial (re)negotiation between the suppliers and distributors (See Section 7).

Invoicing and maximum terms of payment (Art. L441-9 to L441-16 of the French Commercial Code).

Unfair commercial practices (Art. L442-1 et seq. of the French Commercial Code) sanctioning certain practices such as obtaining services or payments without consideration or with unbalanced consideration; imposing obviously unbalanced obligations on the other party; terminating a long-term commercial relationship without notice or with inadequate prior notice, implementing retroactive price reductions or rebates, or automatic alignment to a competitor’s more favourable commercial prices and terms (See Section 5).

Contractual obligations (Art. 1101 et seq. of the French Civil Code): General civil law on contracts is also applicable to commercial contracts, except for some opt-out provisions set forth in the French Commercial Code.

Competition Laws (Art. L420-1 to L420-7 of the French Commercial Code).

EU regulations: Art. 101 of the Treaty on the Functioning of the European Union and the Commission Regulation (EU) No 330/2010 on vertical agreements and concerted practices.

How to appoint a distributor in France

Formal and Registration Requirements

There are no formal requirements for distribution agreements which can be concluded either in writing or orally. In order to define the obligations of each party, we recommend signing a written agreement, especially if exclusivity is granted by either party, or if the distribution concerns products subject to specific regulatory obligations, such as cosmetics or medical devices.

There are no specific registration requirements in France. However, any distributor established in France, as for any other commercial activity, is required to be registered with the Trade and Companies Registry (Registre du Commerce et des Sociétés).

Before signing the agreement– Pre-contractual Information

When a supplier grants a license on its trade name, trademark, or brand to a distributor, and the agreement contains an exclusivity or quasi-exclusivity clause for the operations of the distributor (e.g. in franchise agreements), the supplier must deliver to the future distributor, before signing the agreement, complete legal information as prescribed under Article L330-3 of the French Commercial Code.

This legal information is a detailed notice (also called “Document d’Information Précontractuelle or DIP”) containing the items defined in Art. R330-1 of the French Commercial Code, in order to inform the distributor about the supplier’s company and its activity to the largest extent possible – the network, actual market, any pending litigation, the duration and end of the agreement, any exclusivity, and to provide the supplier with a copy of the contract.

The supplier must deliver the abovementioned information at least 20 days before signing of the agreement. The purpose is to allow the distributor to be fully informed about its commitment to the network it is about to enter.

We also recommend adding a non-disclosure agreement to be signed by the prospective distributor prior to delivering the abovementioned information.

Compliance with this obligation is of paramount importance. In case of non-delivery or incomplete delivery, the agreement may be declared null and void by the courts and the supplier may be sentenced to a fine of up to €1,500 (multiplied by five for corporate entities) (Art. R330-2 Commercial Code).

During & After – Main Contractual Provisions

The distribution agreement should include the following main provisions:

  • scope of the agreement: definition of the relevant products, territory or customer group;
  • exclusivity or non-compete obligations (See Section 3), restrictions imposed on the distributor;
  • licenses of intellectual property rights (e.g. trademarks), if any:
  • conditions of sale: orders, deliveries, retention of title, etc.;
  • prices, price reductions, and payment terms;
  • marketing and promotional obligations of the distributor;
  • minimum turnover and target clauses, and consequences if they are not met (See Section 4);
  • after-sales warranty and liability obligations;
  • term and causes for termination (e.g. breach of contract, change of control, etc.) (See Section 5);
  • post-termination obligations: stocks, use of trademark, customer data (if any);
  • applicable law and jurisdiction, or arbitration.

Article L441-1 III of the Commercial Code provides that if the general terms and conditions of sale have been established by the supplier of goods or services, they shall constitute the sole basis of the negotiation between the parties. While negotiating a distribution agreement, the parties should therefore refer to such general terms and conditions of sale, and indicate in the agreement the clauses that are negotiated and amended by the parties in relation to the supply of goods or services.

In addition to the above, French law also provides for specific agreements to be entered into between suppliers and distributors. These agreements describe the commercial negotiation between the parties in relation to the price, price reductions, and the remuneration for any services or obligations to be fulfilled by distributors (See Section 7).

Exclusive distribution in France

Exclusivity of sale

The exclusivity of sale means granting a distributor the exclusive right to sell the products, either in a defined territory or to a reserved customer base, and is subject to the following conditions:

  • the exclusivity should be expressly stated between the parties;
  • the exclusivity must be limited by time, and granted with respect to a defined territory; and
  • the exclusivity must comply with Competition Laws (please see below).

Exclusivity of purchase

Under an exclusivity of purchase, a distributor must exclusively purchase certain products or services from its supplier, provided that the following conditions are met:

  • pre-contractual information must be delivered to the distributor if the agreement also provides for a license to use a trade name, a trademark or a brand (See Section 2),
  • the duration of the exclusivity is limited to a maximum of 10 years (Art. L331-1 of the French Commercial Code), and
  • the exclusivity obligations must comply with Competition Laws and, if applicable, with the rules pertaining to Non-compete obligations (please see below).

In addition, exclusivity of purchase may be set aside if the contractual consideration for such exclusivity is deemed inadequate or unfair.

Non-compete clauses

Non-compete clauses must also be limited in time and territory in order to be valid under French law, and also in compliance with the below Competition Laws. In addition, they must be proportionate to the legitimate interest to be protected, taking into account the duration of the contract and the activity at stake.

Pursuant to Art. 5-1 of the Commission Regulation (EU) No 330/2020, the following clauses do not benefit from the exemption provided by such regulation:

(a) any direct or indirect non-compete obligation, the duration of which is indefinite or exceeds 5 years,

(b) any direct or indirect obligation that, after termination of the agreement, causes the buyer not to manufacture, purchase, sell, or resell [word suggestion: “COMPETING”] goods or services,

(c) any direct or indirect obligation that causes the members of a selective distribution system not to sell the brands of particular competing suppliers.

For the purposes of point (a) above, a non-compete obligation that is implicitly renewable beyond a period of 5 years are considered as concluded for an indefinite duration.

The above limitation of 5 years is not applicable if the goods or services are sold by the buyer from premises and land owned by the supplier, or leased by the supplier from third parties not connected with the buyer; provided that the duration of the non-compete obligation does not exceed the period of occupancy of the premises and land by the buyer.

Post-contractual non-compete clauses imposed on buyers are only allowed under the following conditions:

(a) the obligation relates to competing goods or services;

(b) the obligation is limited to the premises and land from which the buyer has operated during the contract period;

(c) the obligation is indispensable to protect know-how transferred by the supplier to the buyer; and

(d) the duration of the obligation is limited to a period of one year after termination of the agreement.

The above conditions stem from the Commission Regulation (EU) No 330/2020, and, for retail outlets, from articles L341-1 and L341-2 of the Commercial Code.

Competition Laws

As regards Competition Laws, the same principles apply in France as under the Commission Regulation (EU) No.330/2010 on vertical agreements:

  • passive sales cannot be prohibited: the distributor can validly be prohibited from soliciting orders or prospecting clients outside of its territory or designated customer group, but cannot be prohibited from responding to unsolicited requests from individual customers, including in case of general advertising that may reach customers in other exclusive territories or customer groups.
  • restrictions must be limited to the territories or customer groups reserved for the supplier, or allocated by the supplier to other exclusive distributors.
  • no clause can limit sales made by the distributor’s customers, although the restriction of sales only to end users is permitted to be imposed on a distributor operating at the wholesale level of trade.

In addition to the above, the following restrictions are permitted:

  • the restriction on sales by the members of a selective distribution system to unauthorised distributors within the territory reserved by the supplier to operate that system, and
  • the restriction on the distributor’s ability to sell components supplied for the purposes of incorporation, to customers who would use them to manufacture the same type of goods as those produced by the supplier.

Regarding the abovementioned restrictions on sales within a selective distribution system, Art. L442-2 of the French Commercial Code also provides that a person, directly or indirectly acting in breach of a clause prohibiting sales outside of a selective or exclusive network that is compliant with Competition Laws, may be held liable for the damages caused by such breach.

The Commission Regulation (EU) No.330/2010 on vertical agreements only provides a safe harbour for agreements containing exclusivity or non-compete clauses that are compliant with the conditions set out in this Section 5 (and the other conditions of such Regulation), and entered into between parties with a market share not exceeding 30%. When the market share exceeds this threshold, any exclusivity clause or non-compete obligation must be carefully reviewed on a case-by-case basis to verify its compliance with the French and European Competition Laws.

Online sales

Online sales are considered passive sales if they are not specifically directed at the territory or the customer group reserved to another distributor. Distributors, therefore, cannot be prohibited from selling products online, and restrictions on the use of Internet or other online services may only be allowed to the extent that they would lead to active selling (e.g. through territory-based banners).

Under selective distribution agreements, pure players may be excluded if a brick and mortar store is required for all distributors, and selective criteria may be applied to online sales or marketplaces. Such criteria should be applied to all distributors without discrimination, and should be prepared on a case-to-case basis depending on the nature of the products and network.

On a different note, online marketplaces and platforms are also subject to specific information obligations in France, particularly in relation to the tax and social obligations of their users (Art. 242bis of the General Tax Code).

Minimum turnover clauses in France

Most distributorship agreements contain minimum turnover clauses, especially when the agreement contains a territorial exclusivity to the benefit of the distributor. The clause can therefore be deemed to be consideration for the exclusivity which is granted.

The most common clauses are:

  • minima clause: requiring the distributor to buy pre-defined minimum quantities.
  • quota clause: the distributor agrees to buy a minimum percentage of his turnover during the year (which means that they shall be entitled to buy from competitors once this percentage is reached). If this minimum percentage is unusually high, the clause can be requalified as an exclusivity clause (see below).
  • market penetration clause: the distributor commits to target a certain percentage of the sales on the whole market, i.e. taking into account all competitors.

The foregoing clauses are typically renegotiated annually, even if the contractual term is longer. If the distributor refuses targets that are unilaterally imposed by the supplier, it is not considered to be a breach of the contract by the distributor, and the supplier will not be entitled to terminate the contract (Cass. com., 28 avr. 2004, n° 02-18.392). If the clause is imposed on a distributor without negotiation between the parties, it could be indicative of a significant imbalance in the contract. Such an imbalance could give rise to the suppliers’ liability based on the provisions of Article L442-1 of the Commercial Code.

The clause may be defined as a strict obligation to reach the predetermined goals or targets. If the distributor fails meet the target, it may be construed as a breach of contract depending on the way the clause is drafted, and whether the contract clearly states that the supplier shall be entitled to terminate the contract for such cause (CA Paris, 12 sept. 2018, n° 17/02221).

In most situations, the clause is drafted as a best efforts clause. In such cases, a distributor will not be liable for failing to meet the agreed-upon targets unless it is proven that the distributor did not employ its best efforts to achieve a certain result. In our view, a best efforts clause should be recommended in situations where the development of the market is not solely dependent on the distributor, but also on various other criteria, such as the product’s image, situation of competitors on the market, level of budget available to the distributor to promote the brand on the market, etc.

A minimum turnover clause should always be drafted keeping in mind that it can be used as a tool to limit competition on the market.

From a French Competition Law perspective, the clause should be such that:

  • the goals must be reasonable and reachable by the distributor  (CA Paris, 4 juill. 2018, n° 17/10361 : Contrats, conc. consom. 2018, comm. 174, note M. Malaurie-Vignal).
  • the goals are proportionate to the total percentage of sales made by the distributor on the market, as well as to the importance of the territory. If the minimum level is too high to be reasonably reached by the distributor, this can be considered as an exclusivity clause (i.e the distributor has no possibility to sell products from competitors). Since an exclusivity clause should always have a consideration, the distributor may find no advantage in this clause (for instance CA Paris, 4 juill. 2018, n° 17/10361 ) which may invalidate the clause.
  • the goals must be comparable to goals given to other distributors, should be non-discriminatory, and based on objective criteria (Cass. com., 12 avr. 2016, n° 14-24.263).

From a European Competition Law perspective (based on the Commission Regulation (EU) No 330/2010 on vertical agreements):

  • if the market share of the supplier on the relevant market does not exceed 30%, and the share of the distributor on the same market does not exceed 30%, the clause should be considered as valid, notwithstanding the importance of the goal,
  • if the goals stipulated under the clause exceed 80% of the distributor’s annual purchase of products, Article 5-1 of the EU Regulation states that this obligation, as well as any non-compete clause stated in the agreement (See Section 3), should not exceed 5 years.

Distribution agreement termination in France

Termination notice

Under Art. L442-1 II (ex L442-6, I, 5°) of the French Commercial Code, a party terminating an established commercial relationship without prior written notice, the duration of which depends on the duration of the relationship, can be held liable for the damages suffered by the other party. However, no liability is incurred if the prior notice is served at least 18 months prior to the intended date of termination (for termination notices sent after the date on which this provision was adopted, i.e. 24 April 2019).

The termination notice must be served in writing, and is deemed validly served when received by the recipient.

There are only two situations, strictly interpreted by case law, whereby an agreement can be terminated without a prior notice as stated in Art. L442-1 II:

  • a serious breach of a contractual obligation;
  • in case of force majeure.

Even if the agreement sets out a defined notice period, the parties must verify that such notice is reasonable pursuant to the abovementioned legislation, especially in case of a long-term relationship. When deciding whether the notice period is reasonable, the courts do not take into account the notice period duration contractually agreed upon between the parties.

The purpose is to allow the parties, and in particular the terminated party, to anticipate the end of the contract and reorganise their activity, especially in cases where there may be economic dependency.

What is an established commercial relationship?

The rules regarding sudden termination apply to any kind of regular and significant relationships, whether under a contract or not, in writing or not, for a fixed-term or not. The length of the relationship is assessed on the basis of all successive contracts the parties may have entered into.

In the absence of a written contract, the courts will take into account the following criteria:

  • the existence of an established commercial relationship;
  • the good faith of the parties;
  • the frequency of the transactions, and the importance and evolution of the turnover;
  • any agreement on the prices applied and/or the price reductions/discounts granted to the other party; and
  • any correspondence exchanged between the parties.

What is a sudden/abrupt termination and what is the length of the notice that should be granted?

A termination is considered sudden if no notice or insufficient notice is given, and the termination was unpredictable.

The courts take the following criteria, among others, into account in order to assess the time period necessary for the prior notice:

  • the business field involved (e.g. seasonal fashion collection);
  • the amount of turnover / trade between the parties;
  • the market recognition of the products sold by the terminated party and the difficulty of finding replacement products;
  • the existence of a post-contractual non-compete undertaking;
  • the existence of exclusivity between the parties;
  • the time period required for the terminated party to find other outlets, or reorganize its activity; and
  • the existence of any economic dependency for the terminated party.

Partial termination may also be considered as sudden if a sufficient prior notice is not given, notably in the following cases:

  • an organisational change in the distribution structure of the supplier;
  • a substantial decrease in trade flows; and
  • a change in pricing terms, or an increase in prices without any prior notice sent by a supplier granting special prices to its buyers, or in general any unilateral and substantial change to the contract terms.

Can it be avoided?

If the contract is not subject to French Law and French jurisdiction, the legal provisions on sudden termination will not be applicable. However, if French law is the applicable law (whether there was a choice of law by the parties or not) there is a high risk that these provisions will be applicable.

According to current case-law from the Paris Court of Appeal, it is a mandatory rule if the terminated party is a French company.

Therefore, any contractual provision to the contrary will be unenforceable.

In cases where a French party is involved, the safest way to avoid or limit liability is to carefully choose and review the applicable law and jurisdiction / arbitration clause, and assess the length of the notice period for termination.

What are the costs in case of breach of this legislation?

The amount of damages to compensate for a sudden termination is usually calculated on the basis of the average gross or variable margin that could have been earned by the terminated party during the missing notice (i.e. if a notice of 6 months was granted instead of 12 months, the damages will be calculated on the basis of 6 months of notice). However, other damages, such as the costs of investments which may have been required by the terminating party, can also be granted.

The grant of damages for the sudden termination do not exclude the right to claim damages for a breach of a contractual obligation.

Specific conditions applicable to retail outlets

Under articles L341-1 and L341-2 of the Commercial Code, all agreements (i) for the operation of a retail outlet, (ii) entered into with an entity gathering retail outlets, or making a trademark or tradename available on an exclusive or quasi-exclusive basis (namely franchises), and (iii) including restrictions on the exercise by the owner of the retail outlet to operate its activities (e.g. non-compete clauses), must have a common term. Termination of any one of these agreements should necessarily entails termination of all of the agreements (except for lease agreements or agreements setting up associations, civil companies or cooperatives).

France - Goodwill (clientele) indemnity for termination of distribution agreements

No goodwill indemnity is due in case of termination of a distribution agreement under French Law (unless otherwise provided by the agreement).

However, a sudden termination may give rise to the payment of an indemnity (See Section 5).

Other peculiarities

Commercial negotiation agreement

Art. L441-3 of the French Commercial Code provides that a written agreement must be entered into between a supplier and distributor, setting out the obligations agreed upon between the parties at the end of their commercial negotiation, i.e.:

  • the conditions of the operations of sale of the products or services, including price reductions;
  • the commercial cooperation services rendered by the distributor that can help the commercialization of the products of the supplier, and the remuneration of the distributor for such services (e.g. marketing services provided by the distributor that are paid for by the supplier); and
  • the other obligations which foster the commercial relationship between the supplier and the distributor, and the remuneration of the distributor for such obligations (e.g. when the distributor provides logistics services wherein the supplier delivers the products to only one warehouse, and the distributor then organizes the logistics between the various stores, the supplier pays for such logistics services with a percentage of its turnover made with the distributor).

The written agreement must be entered into for one, two, or three years, no later than the 1st of March of the year during which it takes effect, or at least two months before the start of the commercialization period for products or services which are subject to a specific commercialization cycle.

If the agreement is entered into for more than one year, it must set out how the prices may be revised during the term of the agreement.

The supplier must send its general conditions of sale to the distributor within a reasonable time period before 1st March, or the start of the commercialization period for specific commercialization cycles.

In addition to the above, specific rules apply to mass consumption goods (defined as products which are not durable, and are purchased on a highly frequent and recurring basis, a list being set out by decree):

  • the agreement must indicate the price list of the supplier, as communicated by the supplier with its general terms and conditions, or how such price list can be consulted, and the forecasted turnover;
  • the supplier must communicate its general terms of sale at least 3 months before the 1st of March, or 2 months before the start of any specific commercialization cycle; and
  • the conditions under which the supplier undertakes to offer the consumers promotional advantages on its products or services during the year must be set out in mandate agreements entered into between the supplier and the distributor.

Specific conditions also apply to food products, agricultural products, and milk and dairy products, in particular in relation to their price revision.

Any breach of the abovementioned provisions is punishable by an administrative fine of up to €75,000 for individuals, and €375,000 for corporate entities (multiplied by two in case of a fresh breach within two years from the first sanction).

Unfair practices

In addition to the provisions relating to sudden termination set out in Section 5 herein, French law also provides for various unfair practices (Art. L442-1 to L442-8 of the French Commercial Code). We have set out hereafter some of these practices, mostly sanctioned in the distribution sector.

Any person having activities of production, distribution, or services can be held liable for damages if, within the framework of the commercial negotiation (Art. L442-1 I of the French Commercial Code):

  • it obtained or tried to obtain from the other party a benefit that does not correspond to any compensation, or is manifestly disproportionate to the value of the agreed compensation; and / or
  • it subjected or tried to subject the other party to obligations that create a significant imbalance between the rights and obligations of the parties.

The clauses or contracts containing obligations in breach of the aforementioned conditions can also be declared null and void.

In addition, the clauses or contracts that include the following provisions are null and void (Art. L442-3 of the French Commercial Code):

  • the possibility to retroactively benefit from prices reductions or discounts or commercial cooperation agreements,
  • the possibility to automatically benefit from the most favourable conditions granted to competitors of the co-contracting party.

Any interested party has the right to request that the above practices be stopped, but damages or nullity of clauses or contracts may only be claimed by the victims of the unfair practice. An action may also be brought by the Public Ministry, the Ministry in charge of the Economy, or the President of the Competition Authority, all of whom can request (i) the unfair practices be stopped, (ii) the unfair contracts or clauses be declared null and void, (iii) restitution of the advantages unduly obtained to the victims, and (iv) payment of a civil fine that can go up to the greater of (a) 5 million euros, (b) three times the amount of the advantages unduly obtained, or (c) 5% of the turnover, taxes excluded, in France by the author of the unfair practices during the preceding fiscal year.

Prohibition of Resale at a loss

Except under limited exceptions provided by law, any retailer that resells or announces the resale of a product at a price inferior to its effective purchase price may be sanctioned by a fine of up to €75,000.

The effective purchase price corresponds to the net unit price as indicated on the purchase invoice, reduced by all of the other financial advantages granted by the seller, and increased by the taxes on turnover, specific taxes applicable to the resale, and the transport cost.

A coefficient of 0.9 is applied to the effective purchase price for wholesalers that distribute products or services exclusively to independent professionals who act as retailers, transformers, or end service provider.

Minimum resale price

In addition to being prohibited under Competition Laws, any person that imposes, directly or indirectly, a minimum resale prices of goods or services, may be subject to a fine of up to 15,000 (Art. L442-6 of the French Commercial Code).

Product liability - Hidden defects

Under French law, the legal guarantee on hidden defects cannot be limited between professionals that do not intervene in the same business sector.

Distribution agreements in France - Applicable law

International contracts can be subject to French law or to a foreign law, based on the parties’ choice of law (A), or on conflict of laws rules absent any choice (B).

A) When choosing a law applicable to the contract, the parties should be careful to make sure that this law is adapted to the contract. They should also check if there are mandatory laws that may impact the economy of the contract (keeping in mind that mandatory laws may apply to the contract even if another law has been chosen by the parties).

Some laws are considered to be mandatory by French Courts, although this may fluctuate over time as the position of the French Supreme Court is not always clear cut.

One may point out the following provisions (this list is not exhaustive):

  • art. L330-1 to L330-3 of the French Commercial Code (See Section 1), which stipulates the pre-contractual obligation of information, is considered mandatory when the distributor is located in France (Paris Court of Appeal, 25 October 2011, n° 10/24023).
  • art. 441-3 to 441-8, as well as Art.441-9 to 441-16 of the French Commercial Code on “transparency in commercial relations” and distributorship agreements, defining the form and regularity of pricing (re)negotiation (See Section 7), is considered mandatory by CEPC (French administration) in their recommendation n°19-7 dated 19 April 2019 in all instances where there are sufficient links with the territory of France, in particular when the products are to be distributed on the French territory.
  • art. L442-1 et seq. of the French Commercial Code (formerly L442-6) the Paris Court of Appeal, in a decision dated 9 January 2019 (n°18/09522), has stated that these provisions on unfair commercial practices should be considered as mandatory law for all cases where the products are to be distributed in the French market. This position has not been confirmed by the French Supreme Court. However, this article allows the Ministry of Economics to file a claim, based on the State’s interest, in order to obtain a sanction (administrative fines which cannot exceed 5 million EUR, or 5% of the turnover in the French market). The French Supreme Court decided, in a judgment rendered in 2016, that the possibility offered by article L442-1 to the Ministry of Economics is mandatory law and cannot be set aside by choosing a foreign law in a contract (Cass. 1re civ., 6 juill. 2016, n° 15-21.811, Apple v/ Ministry of Economics).

B) In the absence of any choice of law by the parties, the conflict of law rules are determined by EU Regulation Rome I n°593/2008 dated 17 June 2008 on the law applicable to contracts (the “Rome I Regulation”), which applies even if the applicable law is not the law of a contracting state, see EU Regulation, article 2.

Art. 4.1 f) of the Rome I Regulation states that absent a choice of law by the parties, the applicable law shall be the law of the place where the distributor has its place of activity, unless other strong criteria leads to the application of another law (article 4.3 of the Rome I Regulation).

Distribution agreements in France - Jurisdiction and arbitration

The parties can insert a dispute resolution clause in their contract, in order to choose a national court or submit their disputes to arbitration or mediation.

The French Supreme Court has ruled that the choice made by the parties to submit their disputes to a foreign judge or to arbitration cannot be contested even if mandatory laws potentially apply to their disputes (Cass.com., 1 March 2007, n° 15/22.675). It is true that foreign courts or arbitrators are less keen on applying foreign mandatory laws, but they should take such mandatory laws into consideration (see article 9 of EU Regulation No 593/2008), and/or apply them in case the law chosen by the parties has no connection with the case, while all other connections lead to the law that contains mandatory dispositions (see article 3.3 of the same Regulation).

There is a notable exception to this regarding some provisions of the French Commercial Code, namely Art. L441-3 to L441-6 and L442-1 to L442-3 and L442-7 and L442-8 (See Sections 1 and 8), since the requirements contained in these provisions, which are considered to be mandatory, can be upheld before Courts by the Ministry of Economics through administrative services of the State (DIRECCTE). The Ministry of Economics has an autonomous right of action before Courts that can be triggered separately from a liability claim initiated by one of the parties to the contract against the other. One party can be liable towards the other if found in breach of these articles; a breach of these articles may also result in administrative fines imposed by the Court at the Minister’s request (see Art. L441-6 and L442-4). The French Supreme Court has ruled that an arbitration clause cannot be invoked against the Ministry of Economics (Cass. Civ. 1, 6 July 2016, 15-21.811, Apple/ Ministre de l’Economie). The same solution applies for a jurisdiction clause.

In the absence of any dispute resolution clause in a contract, the applicable rules are either those resulting from EU Regulation 1215/2012 (when applicable, see Art. 6, 21 and 24 of Regulation 1215/2012), or the local law of the judge (in France Art. 42 and 46 of the Code de Procédure Civile).

  • Based on Regulation 1215/2012, a competent judge will be the judge of the place where the service is to be rendered (CJUE, Corman-Collins, aff. C-9/12 dated 19 December 2013 considers that a distribution contract shall be considered as a service contract, where the services are to be rendered by the distributor, based on article 7.1.b) of the Regulation). However, if the contract does not contain any services, but only contains clauses on the sales of products, without any related dispositions, the competent judge shall be the one where the products have been or were to be delivered, based on article 7.1.a) of the Regulation (CJUE, same decision). Notwithstanding the above, the judge of the place where the defendant is located is also competent (article 4 of the Regulation).
  • Based on article 46 of the Civil Procedure Code, the solution is similar to the one described in (i) with EU law. French Courts consider that the Court that has jurisdiction is the court of the place where the service is to be executed, or the products have been or were to be delivered.

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