Parties' ability to choose their arbitrators remains one of the most frequently mentioned advantages of arbitration over litigation. However, this freedom makes sense only if it preserves the overarching duties of arbitrators and judges alike – that is, the duty to be and remain independent and impartial from the parties.
The Paris Court of Appeal recently set aside an award on the grounds of a violation of the principle of equality of arms. The court had to rule on the Iraq war's impact on due process in arbitral proceedings between the Republic of Iraq and two German companies. This decision comes as a reminder that arbitration is a jurisdictional process where parties and arbitrators, while enjoying considerable freedom and flexibility, should be mindful of due process and fair trial guarantees.
The French courts recently supported the rigorous application of the principle of procedural estoppel and reiterated their commitment to the enforcement of agreements that govern arbitral proceedings. The principle prevents parties from relying on alleged irregularities that affect arbitration proceedings before the French courts if the requesting party has not initially raised them before the arbitral tribunal.
A recent Supreme Court decision confirms French law's strict approach in matters involving arbitrators' independence and impartiality. The court found that despite an arbitrator's previous disclosure that his firm had had an inactive relationship with the parent company of one of the parties to the arbitration, his later failure to disclose that this relationship had resumed created reasonable doubt as to his independence and impartiality.
The jurisdictional duality which characterises the French legal system triggers practical difficulties in international arbitrations, especially when they involve the recognition and enforcement in France of arbitral awards relating to issues of French administrative law. The Cour de Cassation recently decided on this issue, holding that civil courts have jurisdiction to rule on the recognition and enforcement of any foreign arbitral award.
The Commercial Division of the Supreme Court has clarified how an assignment of business receivables, known as a 'Dailly assignment', operates. Through this decision, the Supreme Court has reinforced the effectiveness of the Dailly assignment mechanism by giving full effect to the assigned debtor's actual knowledge of the assignment and by giving no effect to contractual provisions that restrict assignment.
The new law on the duty of vigilance for parent companies and principal contractors aims to improve the accountability of multinational companies, prevent serious incidents in France and abroad and allow parties to obtain compensation for losses which they suffer as a consequence of non-compliance. To achieve these aims, the law requires companies to draft an awareness plan and implement a monitoring and whistleblowing system. It also introduces penalties for non-compliance.
The Sapin II Law aims to support transparency, modernise business activity and combat corruption. It introduces measures to regulate executive pay in listed companies, simplify company law and modernise bond issues. Among other things, it has simplified the procedure for contributions of goodwill, abolished the prior authorisation requirement for certain transactions and simplified the procedure for issuing bonds.
The concept of de facto management makes it possible to hold a parent company liable for its subsidiary by requiring that it make up any shortfall in its assets if the subsidiary is insolvent. This ultimately leads to a piercing of the corporate veil. A recent Supreme Court ruling points to a shift in case law towards a more restrictive interpretation of de facto management, thereby reinforcing the corporate veil.
A recent landmark European Court of Justice (ECJ) ruling 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.
A recent Supreme Court decision has confirmed previous case law and explicitly recalled the importance that should be given to the drafting of provisions governing the duration of shareholders' agreements. The court highlighted the fact that shareholders' agreements concluded for as long as the signatories remain shareholders are considered concluded for an indefinite period and may be terminated by any party thereto at any time.
Ordinance 2017-1674 of December 8 2017 introduced into French law the legal framework for the use of a blockchain in order to record the ownership and transfer of unlisted securities. This groundbreaking reform is an essential step towards the modernisation of the existing rules governing the transfer of unlisted securities. Blockchain technology will considerably facilitate and secure the transfer of securities and will undoubtedly have an impact on private M&A deals.
Following the introduction of Ordinance 2016-1635 and Decree 2017-1094, non-listed companies which previously were not required to disclose the identity of their shareholders and maintained confidentiality through shareholders' agreements must now disclose their beneficial owners not only when a company is set up, but also on a continuous basis. However, the definition of a 'beneficial owner' remains unclear.
The foreign investment rules provided under the Monetary and Financial Code were recently amended. M&A practitioners have welcomed the reform of the foreign investment rules, as it reduces the paperwork for foreign investments not falling within the scope of the prior authorisation regime. In addition, this reform has removed a cumbersome administrative procedure considered redundant.
The Macron Law and its implementation decree constituted breakthrough legislation for intercompany loans as they provide new exemptions to the French banking monopoly. The reform allows companies to overcome the difficulties faced when trying to secure a loan from banks and credit institutions. However, the newly authorised intercompany loans remain subject to several conditions that may significantly narrow the impact of this reform.
The new majority in Parliament has announced, and in some cases already enacted, many changes. Among them, those dealing with employees' representatives are important, as they reshape a significant part of the Labour Code. While these changes are not expected to radically alter industrial relations in the workplace immediately, some of the major modifications and their general characteristics are worth highlighting.
Since the Harvey Weinstein case, French society has been shaken by a social media movement in which #balancetonporc ("denounce your pig") has prompted a frenzy of reactions, from women revealing incidents that they had previously kept to themselves to false accusations and endless debate regarding what is considered as offensive. The recent spotlight on this issue provides an opportunity to describe the system in place for cases of sexual harassment in the workplace.
Since 2016 the government has modified the law on economic dismissal on several points. Under French labour law, any economic dismissal must be justified by actual and serious grounds. Among other recent changes, the introduction of the El Khomri Law has clarified the definition of 'economic motivation' to take into account the Court of Cassation's case law and added two new reasons to the list of economic grounds under the Labour Code.
The new government has upheld its promise to reform French labour law and enacted five ministerial orders, one of which is dedicated to the so-called 'visibility and securing of working relationships'. In particular, a damages scale, which will be mandatory for the judge and parties, will be introduced to provide security and clarity regarding the consequences of potential litigation. This scale, through the predictability that it provides, is meant to remove uncertainty and allow the creation of jobs.
The French courts often address the issue of whether a franchisor has properly fulfilled its assistance obligation. In a recent case, the Paris Court of Appeal held that this obligation is exclusively technical and commercial and constitutes purely a 'best efforts' obligation. This decision has confirmed that franchisors need not provide financial assistance to their franchisees. Instead, the assistance obligation consists only of helping the franchisee to operate the business from a commercial and technical standpoint.
The extent of the group in the context of a franchising network has given rise to a number of court decisions, leading to some uncertainty for employers as to the scope of their reassignment obligations. A set of bills was recently enacted as part of the priority measures intended to bring greater flexibility to labour legislation. One such measure provides a narrow definition of a 'group' in relation to the obligations to reassign employees who are dismissed either for economic reasons or for personal inability.
One of the key components of any franchise agreement is the transmission of know-how by the franchisor to the franchisee. Absent this, the agreement may be held null and void or requalified as a mere distribution agreement. In a recent decision, the Supreme Court held that the absence of any pilot outlet run by the franchisor does not amount to a lack of know-know transmission.
Under French civil law, a party to a contract has a duty of loyalty to its contracting party in the performance of the contract. The Supreme Court recently applied this duty of loyalty to a franchisor which had concluded a framework contract with a master franchisee. The court held that the franchisor did not cooperate with, assist or advise the master franchisee loyally. The court also held that it had terminated the framework contract in an unfair manner.
Franchise agreements often contain pre-emption rights allowing franchisors to take over the shares or assets of their franchisees with priority over third parties. The rationale behind these rights is to guarantee the continuity and consistency of the network that the franchisor has gradually built and avoid the leakage of know-how to competitors. Two recent court cases have shed some light on the validity of pre-emption rights and their enforcement with regard to franchisees and their shareholders.