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28 November 2016
A recent landmark ruling of the European Court of Justice (ECJ)(1) calls into question the type of liability incurred when an established commercial relationship is suddenly terminated. According to the ECJ, the liability is contractual, whereas for the French Supreme Court, tortious liability arises. The practical consequences of this ruling are significant in that EU law on jurisdiction differs substantially, depending on whether the liability in question is tortious or contractual.
Article L442-6 I 5° of the Commercial Code prohibits the sudden termination of an established commercial relationship. This legislation was originally introduced to combat dereferencing practices in the retail sector, but today applies to any commercial relationship, even in the absence of a written contract. A party that wishes to end a commercial relationship must give sufficient written notice to the other party, which varies depending on the length of the relationship, among other factors.
This rule has no equivalent in other EU member states and frequently raises a host of questions for European partners in their dealings with French companies. According to the established case law of the Commercial Division of the Supreme Court, a terminating party that suddenly ends – even only partially – an established commercial relationship may be liable in tort.(2) Under domestic law, this means that a claimant can bring proceedings before the court that has jurisdiction in the place where:
According to the Commercial Division of the Supreme Court, this approach also applies to intra-EU community disputes. However, in April 2015 the Paris Court of Appeal referred the question to the ECJ in a request for a preliminary ruling of how the EU Brussels I Regulation (44/2001) (now known as the Brussels I Regulation (recast) (1215/2012)) applies to the sudden termination of an established commercial relationship.
A French business had been re-selling the food products of an Italian company in France for almost 25 years. This longstanding commercial relationship was not underpinned by a written agreement. On December 10 2012 the Italian company informed its French partner that it intended to end their commercial relationship as of January 1 2013.
The French company took legal action before the Marseille Commercial Court to obtain damages for sudden termination of a commercial relationship. The court declared that it had jurisdiction to examine the case in accordance with Article 5(3) of the Brussels I Regulation, on the basis that the claim was tortious in nature. The Italian company challenged the jurisdiction of the French court, leading the court of appeal to ask the ECJ to rule on whether a sudden termination of an established commercial relationship gives rise to tortious or contractual liability.
The ECJ invited the domestic courts to determine whether the relationship between the commercial partners might have given rise to a "tacit" commercial relationship. If so, the conditions for ending this tacit contractual relationship would be governed by contract law and Article 5(1) of the Brussels I Regulation would therefore apply.
Article 5(1) would potentially give exclusive jurisdiction to examine the case to the Italian courts, as Italy appeared to be the place of performance of the obligation on which the claim was based.
Concept of tacit contractual relationship
The ECJ defines this concept as a longstanding commercial relationship which has developed without a written contract. Such a relationship can be identified through a range of indicators, such as the frequency of transactions and their development over time or the existence of an agreement on price.
In practical terms, the concept of a tacit contractual relationship is very close, if not identical, to the wider concept of an established commercial relationship. Accordingly, it could be argued that if Article L 442-6 I 5° (which can be applied regardless of whether the parties have entered into a written agreement) is found to apply, it should necessarily follow that in light of the jurisdictional rules of the Brussels I (recast) Regulation, Article 7(1) of the regulation would apply (contractual disputes) and not Article 7(2) (tortious disputes).
The ECJ's stance may have far-reaching consequences. Until now, it was in the interest of an alleged victim of a sudden termination to bring proceedings in the French courts, so as to benefit from the application of Article L 442-6 I 5°. Further, this rule is mandatory in France as a matter of public policy. Bringing proceedings before a French court is relatively straightforward under Article 7(2) of the Brussels I (recast) Regulation. A claimant that is domiciled abroad can bring proceedings before the court that has jurisdiction in the place of domicile of its French counterparty. If the claimant is domiciled in France, it can bring proceedings before the court that has jurisdiction where the action giving rise to the loss took place, which would also give the French courts jurisdiction. However, the outcome might be very different if Article 7(1) of the Brussels I (recast) Regulation applies.
Application of Article 7(1)
In the case in hand, the commercial relationship consisted of successive sales of goods, and under the regulation, the competent court would have been the court that had jurisdiction in the place where the goods were delivered (ie, the Italian courts), as the goods were delivered on 'ex-works' terms.
The outcome may be different in the context of a distribution relationship, which is treated by the courts as being a supply of services. If the French company had been a distributor, it could have brought proceedings before the French courts, as the regulation affords jurisdiction to the courts of the place where the services were provided.
As a result of this decision, foreign companies now have a greater opportunity than ever before to avoid actions brought by their French partners based on Article L 442-6 I 5° of the Commercial Code. Where a commercial relationship is governed by a contract, expressly choosing a foreign court and foreign law to settle disputes and govern the contract would enable foreign partners to sidestep Article L 442-6 I 5°. On the other hand, if the relationship between the parties is based only on a tacit agreement, they will need to look more closely at the place of delivery or performance of the services to determine which court has jurisdiction. In this respect, opting for ex-works delivery would in theory allow a foreign supplier to avoid the jurisdiction of the French courts when the Brussels I (recast) Regulation applies.
For further information on this topic please contact Rhidian David or Cyrille Gaucher at Cabinet Hughes Hubbard & Reed by telephone (+33 1 44 05 80 00) or email (email@example.com or firstname.lastname@example.org). The Cabinet Hughes Hubbard & Reed website can be accessed at www.hugheshubbard.com).
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